How is credit scoring primarily utilized?

Credit scoring is primarily utilized to predict the creditworthiness of a credit card applicant. Credit scores are numerical representations of a borrower's credit history and financial behavior, which lenders use to assess the likelihood that an applicant will repay their debts. A higher credit score typically indicates a lower risk to lenders, while a lower score suggests a higher risk of default.

This prediction allows lenders to make informed decisions about whether to extend credit and under what terms, such as the amount of credit offered and the interest rates applicable. Consequently, accurate credit scoring helps in streamlining the process of lending by providing a standardized assessment of an applicant's credit risk, which is essential in a credit-based economy.

While other options may relate to aspects of lending, they do not capture the core purpose of credit scoring as effectively. For instance, informing a borrower of their obligations, determining interest rates, or assessing collateral involves different actions or assessments that may incorporate credit scores, but they are not the primary function of credit scoring itself.