What is defined as a numerical representation of an individual's creditworthiness?

A numerical representation of an individual's creditworthiness is known as a credit score. This score is calculated based on information from the person's credit report, which includes details about their borrowing and repayment history, and it serves as a key indicator for lenders when assessing the risk associated with granting credit.

A credit score typically ranges from 300 to 850, with higher scores indicating better creditworthiness. Lenders use this score to determine the likelihood that an individual will repay borrowed funds, influencing decisions on whether to approve loans and at what interest rates.

This concept is essential in personal finance because a higher credit score can result in more favorable borrowing terms, such as lower interest rates, which can save individuals money over time. Understanding credit scores is vital for effective financial planning and managing credit responsibly.