What do lenders typically use to assess the risk of lending to a borrower?

Lenders primarily use a credit score to assess the risk of lending to a borrower because it provides a quantifiable measure of the borrower’s creditworthiness. The credit score reflects the borrower's past borrowing behavior, including payment history, the amount of outstanding debt, length of credit history, types of credit used, and any recent credit inquiries. A higher credit score indicates a lower risk for lenders, as it suggests that the borrower has a proven track record of managing credit responsibly.

While other factors like income level, employment history, and debt-to-income ratio are also important in evaluating a borrower’s overall financial health, the credit score is specifically designed to predict the likelihood of default based on historical data. It simplifies the assessment process for lenders and provides a standardized way to evaluate prospective borrowers across the market.