What does the term 'creditworthiness' represent?

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The term 'creditworthiness' refers specifically to a numerical assessment based on an individual's or entity's credit history. This assessment typically evaluates various factors, including payment history, outstanding debt, length of credit history, and types of credit used. Financial institutions, such as banks, use this assessment to determine the likelihood that a borrower will repay their debts, which in turn informs lending decisions and the terms of any credit extended.

Understanding creditworthiness is crucial in the context of loans and credit cards, as it provides a standardized method for evaluating the risk associated with lending to a particular borrower. A strong credit score generally indicates high creditworthiness, while a lower score suggests higher risk, influencing both approval and interest rates. This assessment is foundational in credit-related decisions in the banking sector.

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