1. What is the primary purpose of a credit score?
- A. To determine a person’s total income
- B. To evaluate a person’s savings pattern
- C. To assess a borrower’s creditworthiness
- D. To calculate tax liability
A credit score is a numerical representation of a borrower’s creditworthiness, helping lenders predict the likelihood of repayment.
2. Which of the following factors typically influence a credit score?
- A. Geographic location only
- B. Payment history, outstanding debt, length of credit history
- C. Educational qualifications only
- D. Age and gender
Credit scores are calculated based on payment history, amount owed, length of credit history, types of credit used, and new credit inquiries.
3. When did credit scoring start to gain widespread adoption in banking?
- A. 1950s–1960s with early statistical models
- B. 1980s with mobile banking
- C. 2000s with fintech apps
- D. 1930s with manual ledger systems
Credit scoring evolved from statistical models in the 1950s–1960s to help banks standardize lending decisions.
4. Which of the following is generally considered a good credit score in most scoring models?
- A. 300–400
- B. 450–500
- C. 500–550
- D. 750 and above
A credit score of 750 or above is generally considered good, indicating low credit risk to lenders.
5. Which of the following best describes the evolution of credit scoring?
- A. Started as fintech apps, later adopted by banks
- B. Evolved from statistical scoring models to modern automated systems
- C. Started as RBI regulations, then became statistical models
- D. Was invented in the 1990s for mobile banking only
Credit scoring evolved from early statistical models used by banks to today’s automated systems incorporating advanced analytics and machine learning.
6. Which of the following is a commonly used credit scoring model?
- A. NPV Model
- B. FICO Score
- C. CAPM Model
- D. SWOT Analysis
The FICO score is a widely used credit scoring model that evaluates a borrower’s creditworthiness using payment history, debt, and other factors.
7. Which factor is NOT directly used in most credit scoring models?
- A. Payment history
- B. Outstanding debts
- C. Favorite color of the borrower
- D. Length of credit history
Credit scoring models use financial and credit-related factors; personal preferences like favorite color are irrelevant.
8. Which of the following is a recommended practice to improve or maintain a good credit score?
- A. Timely payment of all credit obligations
- B. Avoiding bank accounts entirely
- C. Closing all credit cards
- D. Frequently changing jobs
Timely payment of loans and credit obligations positively impacts a borrower’s credit score.
9. One positive side of maintaining a good credit score is:
- A. Exemption from taxes
- B. Unlimited credit without assessment
- C. Automatic loan approval for all applicants
- D. Easier access to credit at favorable interest rates
A good credit score helps borrowers get loans easily and often at lower interest rates due to reduced credit risk.
10. Which action can negatively affect your credit score?
- A. Maintaining a mix of secured and unsecured credit
- B. Missing payments or defaulting on loans
- C. Regularly reviewing your credit report
- D. Keeping credit utilization low
Defaults and late payments are major factors that reduce a borrower’s credit score.
11. Which of the following is a key benefit for banks using credit scoring models?
- A. Eliminates all credit risk
- B. Guarantees profits on every loan
- C. Enables consistent and objective credit decisions
- D. Automatically approves all high-income borrowers
Credit scoring allows banks to evaluate applicants objectively and consistently, reducing subjective bias in lending.
12. What is the recommended credit utilization ratio to maintain a positive credit score?
- A. Below 30%
- B. Above 90%
- C. 50–70%
- D. Exactly 100%
Maintaining credit utilization below 30% of the total available credit helps in improving or maintaining a good credit score.
13. Which of the following is a common warning sign that a credit score may be deteriorating?
- A. Increasing monthly savings
- B. Multiple missed payments or defaults
- C. Timely payment of all bills
- D. Maintaining a low credit utilization ratio
Missed payments or loan defaults are key indicators of a declining credit score and increase credit risk.
14. Frequent applications for new credit or loans can negatively affect a credit score because:
- A. They increase your income
- B. They reduce total debt
- C. They improve credit mix
- D. They indicate higher credit risk to lenders
Multiple credit inquiries suggest a borrower may be taking on more debt than they can manage, impacting the credit score negatively.
15. Which of the following is a recognized Credit Information Company (CIC) in India?
- A. CIBIL
- B. NSE
- C. SEBI
- D. RBI
CIBIL (Credit Information Bureau India Limited) is one of the major credit information companies in India regulated by RBI.
16. Which of the following statements about Credit Information Companies in India is correct?
- A. They provide loans directly to customers
- B. They regulate banks and financial institutions
- C. They collect and maintain credit information of borrowers
- D. They set interest rates for banks
CICs like CIBIL, Experian, Equifax, and CRIF collect borrowers’ credit information and provide credit reports to lenders for decision making.
17. If a borrower notices a sudden drop in their credit score without any missed payments, which action should they take first?
- A. Apply for multiple new loans to improve credit mix
- B. Check their credit report for errors or fraudulent activity
- C. Close all existing credit accounts
- D. Ignore the drop and continue payments
Reviewing the credit report helps identify errors or fraud that may have caused a sudden drop in the credit score.
18. Which of the following is a positive effect of Credit Information Companies for banks?
- A. They reduce the bank’s deposit base
- B. They guarantee loan repayment
- C. They offer tax benefits
- D. They help banks assess borrower risk and make informed lending decisions
CICs provide detailed credit histories, enabling banks to evaluate risk and avoid lending to high-risk borrowers.
19. Which warning sign in credit behavior can signal over-reliance on credit cards?
- A. Credit utilization consistently above 80%
- B. Low account balance in savings account
- C. Early loan repayments
- D. Long credit history
High credit utilization indicates the borrower relies heavily on credit, which can negatively affect the credit score.
20. How often are banks recommended to check a borrower’s credit report for monitoring purposes?
- A. Once every 5 years
- B. Only at loan application
- C. Periodically, e.g., quarterly or semi-annually
- D. Never, unless there is a default
Periodic credit checks help banks proactively manage credit risk and identify early warning signs of borrower distress.
21. Which of the following is a common issue in credit scoring?
- A. Predicting stock market returns
- B. Determining a borrower’s income tax liability
- C. Incomplete or outdated credit information
- D. Setting fixed interest rates for loans
Credit scoring relies on accurate and updated information; missing or outdated data can lead to incorrect scoring and poor lending decisions.
22. Which of the following is a common mistake that can lower a borrower’s credit score?
- A. Regularly reviewing credit reports
- B. Not reporting errors in the credit report
- C. Paying loans on time
- D. Maintaining a low credit utilization
Errors in credit reports, if not disputed or corrected, can negatively impact the borrower’s credit score.
23. Which action is recommended for troubleshooting a low credit score?
- A. Closing all credit accounts immediately
- B. Avoiding payments until score improves
- C. Ignoring notices from lenders
- D. Reviewing the credit report and correcting errors
Reviewing credit reports and correcting mistakes or disputing inaccuracies is the primary step in troubleshooting a low credit score.
24. One potential issue with credit scoring models is that they may:
- A. Guarantee loan repayment
- B. Overlook non-traditional credit behaviors
- C. Calculate taxes automatically
- D. Predict the stock market
Traditional scoring models may not consider alternative credit data such as rental payments or utility bills, which can disadvantage some borrowers.
25. Which of the following steps can help prevent mistakes in credit scoring?
- A. Ignoring credit statements
- B. Applying for multiple loans at once
- C. Regularly monitoring credit reports and disputing errors
- D. Closing old credit accounts unnecessarily
Regular monitoring and dispute of errors ensures that the credit score reflects accurate borrowing behavior.
26. Which of the following is NOT a recommended troubleshooting step for a poor credit score?
- A. Ignoring discrepancies in the credit report
- B. Paying overdue bills promptly
- C. Reducing high credit card balances
- D. Setting up automatic payments to avoid missed dues
Ignoring discrepancies will not fix a low credit score; active correction is required to improve creditworthiness.
27. Which of the following can be a reason for inaccurate credit scores?
- A. Timely payment of all debts
- B. Data entry errors in credit reports
- C. Maintaining a mix of secured and unsecured credit
- D. Low credit utilization
Errors during data entry or reporting to credit bureaus can result in inaccurate credit scores, affecting lending decisions.
28. What is the key benefit of troubleshooting your credit score regularly?
- A. Automatically increases income
- B. Guarantees loan approval
- C. Eliminates all financial risks
- D. Identifies errors and allows corrective action to improve creditworthiness
Regularly reviewing and correcting your credit report helps maintain or improve your credit score, ensuring better access to credit.
29. A borrower notices that their credit score dropped after paying off a large loan. What could be the reason?
- A. Closing the loan account increases income
- B. Closing accounts can reduce the length of credit history, temporarily lowering the score
- C. Paying off loans has no impact on the score
- D. Credit bureaus ignore loan closures
Closing old accounts can reduce the average length of credit history, which may temporarily lower a credit score.
30. Which of the following strategies helps in troubleshooting and maintaining a healthy credit score?
- A. Applying for as many credit cards as possible
- B. Ignoring credit card statements
- C. Regularly reviewing credit reports, disputing errors, and timely payments
- D. Avoiding all types of credit entirely
Proactive monitoring and correcting errors, along with timely payments, ensures credit scores remain healthy and accurate.
