Which one of the following best defines the term credit scoring ? 1) Categorizin

Question

Which one of the following best defines the term credit scoring?

1) Categorizing customers into groups depending on the length of time it takes each customer to pay for purchases

2) Compiling a list of accounts receivable segregated by the length of time each receivable has been outstanding

3) Evaluating the opportunity costs of a credit policy

4) Process of quantifying the probability of default when granting credit to customers

5) Tracking of both the number and the size of customer orders over a period of time

Explanation / Answer

4) Process of quantifying the probability of default when granting credit to customers.

Better the credit score, lower is the rate of interest charged.

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