Using data provided by the credit applicant, along with any information obtained from the credit bureau, the store or bank must decide whether to grant credit. Very likely, some type of credit scoring scheme will be used to make the decision. An over all credit score is developed for you by assigning values to such factors as:
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When a credit applicant applies for credit, the store or bank must evaluate the applicant's creditworthiness to determine whether to grant credit. To make this decision, the store or bank may use a credit scoring scheme that assigns values to various factors to develop an overall credit score.
Some of the factors that may be considered when developing a credit score include:
Annual income: The applicant's annual income is often a key factor in determining creditworthiness. A higher income may indicate that the applicant has the ability to repay the loan or credit card balance, while a lower income may suggest that the applicant may struggle to make payments.
Level of debt paid: The store or bank may also consider the applicant's payment history on existing debts. If the applicant has a history of paying debts on time and in full, this may indicate that they are a low credit risk. On the other hand, if the applicant has a history of missed or late payments, this may suggest that they are a higher credit risk.
Level of existing debt: The amount of debt the applicant currently has may also be a factor in determining creditworthiness. If the applicant already has a significant amount of debt, the store or bank may be hesitant to extend additional credit, as it may be difficult for the applicant to manage their debt load.
Presence of savings accounts: Some credit scoring schemes may also consider the presence of savings accounts or other assets that the applicant has. This may indicate that the applicant has the ability to repay the loan or credit card balance in the event of an emergency.
Overall, a credit scoring scheme is designed to evaluate an applicant's creditworthiness based on a variety of factors. By assigning values to these factors and developing an overall credit score, the store or bank can make an informed decision about whether to grant credit to the applicant.