GradReady Real-World Finance Practice Exam

A credit score is a numerical representation of a person's creditworthiness, which is determined based on their credit history. This score is essential because it helps lenders assess the likelihood that a borrower will repay their loans. It takes into account various factors, such as payment history, amounts owed, length of credit history, types of credit used, and recent credit inquiries.

When individuals apply for loans or credit cards, lenders use this score to make informed decisions about whether to approve the application and at what interest rate. A higher credit score indicates lower risk for the lender, while a lower score suggests a higher risk of default. Understanding one's credit score is crucial for managing personal finances and ensuring access to credit under favorable terms.

In contrast, the other options do not accurately describe what a credit score signifies. Income level, investment performance, and the amount of debt one can incur do not encapsulate the essence of creditworthiness as determined by one's borrowing history and behavior.