What role does a credit score play in determining loan eligibility?

A credit score plays a crucial role in determining loan eligibility as it reflects a borrower's reliability in repaying debt. Lenders use credit scores to assess the risk of lending money to a borrower. A higher credit score indicates a history of responsible credit use, on-time payments, and lower credit utilization, which suggests to lenders that the borrower is likely to fulfill their financial obligations. This assessment helps lenders make informed decisions about whether to approve a loan application and what terms to offer, such as interest rates.

Understanding the relevance of the credit score in this context clarifies why other choices do not align with its primary function. For instance, while the credit score can influence the interest rate a borrower might receive, it does not directly set the rate itself or dictate the type of property that can be purchased or the geographical limits for investments. The credit score serves instead as an indicator of repayment capability, central to the lending process.