Economics · Money and Banking
Case Situation: Sarah, a young professional, is planning to apply for a personal loan to cover some expenses. Before proceeding, the bank conducts a credit scoring to evaluate her creditworthiness. Based on her good credit history, including timely payments on previous loans and credit cards, Sarah receives a favorable credit score. As a result, the bank approves her loan with a lower interest rate. The Credit Information Company (CIC) regularly monitors Sarah's credit score to ensure it accurately reflects her financial behavior and history. Which of the following is most accurate about how credit scoring works in financial transactions?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Credit scoring is a subjective assessment made by lenders based on personal opinions and does not rely on any financial history or statistical analysis.
- 2Credit scoring is only concerned with evaluating the value of assets, such as property or stocks, to determine loan eligibility.
- 3Credit scoring is primarily used by governments to evaluate the financial stability of corporations and does not apply to individuals seeking personal loans or credit.
- 4Credit scoring evaluates the creditworthiness of an individual based on statistical analysis of their financial behavior and history, impacting decisions like loan approvals and interest rates.✓
Correct answer
Credit scoring evaluates the creditworthiness of an individual based on statistical analysis of their financial behavior and history, impacting decisions like loan approvals and interest rates.
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