A credit rating, also known as a credit score, is a number that represents a person’s creditworthiness. It is a numerical assessment of a person’s credit history and financial behaviour, which helps lenders determine how likely they are to repay their debts. Credit ratings are based on various factors such as credit history, outstanding debt, payment history, length of credit history, and new credit applications.

Credit providers use credit scores to assess the risk of lending money to an individual. They use the score to determine if the person is a high or low-risk borrower. A high credit score indicates that the borrower is more likely to repay their debts on time and is, therefore, a low-risk borrower. Conversely, a low credit score indicates that the borrower is a high-risk borrower who may default on their debts.

Credit scores are used by credit providers to make lending decisions, such as whether to approve a loan, the amount of credit that should be extended, and the interest rate that should be charged. A high credit score generally results in a lower interest rate and more favourable loan terms, while a low credit score may lead to higher interest rates and less favourable loan terms.

Credit scores are also used by landlords, insurance companies, and employers to assess an individual’s financial responsibility. For example, landlords may use credit scores to determine if a tenant is likely to pay rent on time, insurance companies may use credit scores to determine insurance premiums, and employers may use credit scores as part of their hiring process.