What is a credit score?

A credit score is essentially a numerical representation that reflects a person’s creditworthiness, which is primarily based on their credit history and how reliably they have repaid loans in the past. This score is derived from various factors including payment history, amounts owed, length of credit history, new credit, and types of credit used.

The primary function of a credit score is to predict how likely an individual is to repay a loan on time. Lenders use this prediction to assess the risk involved in lending money or extending credit to individuals. The higher the credit score, the lower the perceived risk, which generally leads to better lending terms, such as lower interest rates.

In contrast to the other choices, a credit score does not directly measure the amount of debt a person has, their spending habits, or their employment history. While these factors can indirectly influence the score, they do not constitute the score itself or its primary purpose.