What does 'credit scoring' indicate?

Credit scoring serves as a numerical expression of a person's creditworthiness, derived from an analysis of their credit history. This score is a critical indicator used by lenders to evaluate the likelihood that a borrower will repay their debts on time. It takes into account various factors such as payment history, the amount owed, length of credit history, types of credit used, and recent credit inquiries. By quantifying these elements into a single score, lenders can make informed decisions regarding loan approvals, interest rates, and credit limits.

This concept is distinct from simply measuring a person's spending habits or directly linking the score to monthly income, which do not provide a comprehensive view of credit health. Credit scoring is also not associated with ranking investment risks, as that pertains to investment analysis rather than an individual's borrowing capacity. Thus, the correct answer encapsulates the essence of what credit scoring represents, emphasizing its role in assessing creditworthiness based on historical data rather than mere financial metrics or spending behavior.