What is the role of credit scores in lending decisions?

Credit scores play a pivotal role in lending decisions as they provide lenders with a quick and standardized way to evaluate a borrower's creditworthiness. Creditworthiness is essentially an assessment of the likelihood that a borrower will repay their debts. By examining the credit score, lenders can gauge the risk involved in extending credit to an individual.

A higher credit score typically indicates that a borrower has a history of managing debt responsibly, making payments on time, and keeping overall debt levels low relative to available credit. This information allows lenders to make informed decisions about whether to approve a loan application and what terms to offer, such as interest rates and repayment period.

The other statements do not accurately represent the function of credit scores in lending. For example, credit scores are not ignored; they are a crucial part of the evaluation process. Furthermore, credit scores do not assess income levels directly but rather reflect the borrower’s credit history and behavior concerning debts. Lastly, while credit scores influence how much a lender may be willing to offer, they do not strictly determine the amount to be lent, as other factors like income, debt-to-income ratio, and the lender's policies also play significant roles.