What is the purpose of a FICO score?

The purpose of a FICO score is to predict a borrower's future credit performance. This score is a crucial indicator used by lenders to assess how likely a borrower is to repay a loan based on their credit history and behavior. The FICO score is derived from various factors, including payment history, amounts owed, length of credit history, new credit, and types of credit used.

A higher FICO score generally indicates a lower credit risk for lenders, suggesting that the borrower is more likely to make timely payments and manage debt responsibly. This predictive capability is vital for lenders in making informed decisions about extending credit and determining the terms of the loan.

In contrast, other options focus on different aspects of the lending process that do not directly relate to an individual's credit performance. Evaluating geographical loan risks pertains more to assessing economic factors connected to specific areas rather than individual creditworthiness. Assessing property value is essential for determining collateral worth, while determining loan repayment terms can be influenced by many factors, including the FICO score but does not encompass its primary purpose.