How do financial institutions evaluate the creditworthiness of potential borrowers?
A) They offer high interest rates because only the best borrowers will be able to afford them.
B) They gather information regarding the borrowers' finances.
C) They do not evaluate creditworthiness because everyone is treated the same.
D) They do not evaluate the creditworthiness because they know the borrower will honor his/her obligation to repay the loan.

Question

Quizplus · Accepted Answer

Financial institutions evaluate the creditworthiness of potential borrowers by gathering information about their finances, such as credit history, income, debt-to-income ratio, and employment history. This helps them determine the borrower's ability and willingness to repay the loan. Offering high interest rates does not necessarily indicate creditworthiness, while not evaluating creditworthiness or assuming everyone will honor their obligation is too risky for financial institutions.

How Do Financial Institutions Evaluate the Creditworthiness of Potential Borrowers