Credit Scoring Models Are Used by Lenders To

question 29

Multiple Choice

Credit scoring models are used by lenders to:

• A)Determine the borrowers capacity to pay.
• B)Aid in the prediction of default or bankruptcy.
• C)Determine the optimal debt equity ratio.
• D)Both A and B.
• E)Both A and C.

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Definitions:

Law of Effect

A psychological principle suggesting that behaviors followed by satisfactory outcomes are more likely to be repeated, whereas those followed by unsatisfactory outcomes are less likely to be repeated.

Satisfying Outcomes

Outcomes that fulfill or exceed the expectations of an individual, leading to contentment or happiness.

Behaviors

The observable actions, reactions, or conduct of an individual or group in response to external or internal stimuli.

Frustrating Outcomes

Results of actions that cause annoyance or disappointment due to failure to satisfy needs or expectations.