What is a credit score?

Study for the FDIC AIDT Ready-To-Work (RTW) Money Smart Exam. Practice with multiple-choice questions, each with hints and explanations. Prepare for your assessment!

A credit score is fundamentally a numerical representation of an individual's creditworthiness, which reflects how well they have managed their financial obligations. This score is calculated based on various factors, including payment history, amounts owed, length of credit history, types of credit used, and new credit inquiries. Lenders use this score to assess the risk of lending money to a person, making it a critical measure in the lending process. It helps potential creditors understand the likelihood of a borrower defaulting on their loans, influencing interest rates and loan approval decisions.

In contrast to this, measuring a person's wealth, outlining a detailed report of financial transactions, or assigning a value to personal assets captures different aspects of an individual's financial situation, but they do not specifically quantify creditworthiness in the way a credit score does.

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