Which term is the general measure of the likelihood that someone will or will not be able to pay back money they borrow, and is measured by a credit score?

• A. Credit risk
• B. Credit score
• C. Credit bureau
• D. Credit report

Answer: (A)

Credit risk is the general measure of the likelihood that a borrower will not repay a loan. Lenders evaluate this risk to decide whether to approve credit and at what terms. A credit score is the numeric tool that estimates that risk by translating a borrower’s credit history into a single number—the higher the score, the lower the perceived risk of default. The other terms describe data sources or outputs (a credit bureau collects data, a credit report summarizes a person’s credit history, and a credit score is the numeric result). Since the question is asking for the measure of default likelihood, the concept that fits best is credit risk.