Question

lenders look at the credit score of a loan applicant in order to ______.
a. verify the applicants annual gross income
b. ensure that the applicant is financially responsible
c. ensure that the applicants credit score is as high as possible
d. see what types of loans the applicant has applied for in the past

Explanation:

Analyze the purpose of a credit score

A credit score is a numerical representation of an individual's creditworthiness, derived from their credit history. Lenders use this score to assess the likelihood that a borrower will repay their debt on time, which serves as an indicator of financial responsibility.

Evaluate the given options

• Option (a) is incorrect because annual gross income is verified through tax returns, pay stubs, or W-2 forms, not a credit score.
• Option (b) is correct because a credit score reflects past borrowing and repayment behaviors, helping lenders evaluate if the applicant is financially responsible.
• Option (c) is incorrect because lenders do not look at a score to "ensure" it is as high as possible; they simply evaluate the score that currently exists.
• Option (d) is incorrect because while a credit report shows inquiries, the primary purpose of checking the credit score itself is to assess risk and responsibility, not merely to list past loan applications.

Answer:

• a. verify the applicant's annual gross income
• b. ensure that the applicant is financially responsible (Correct answer)
• c. ensure that the applicant's credit score is as high as possible
• d. see what types of loans the applicant has applied for in the past