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    Question

    Which metric would be most indicative of a customer's

    likelihood of defaulting on a loan, based on historical data analysis?
    A Customer's geographic location. Correct Answer Incorrect Answer
    B Number of credit inquiries in the past six months. Correct Answer Incorrect Answer
    C Average time spent on the loan application form. Correct Answer Incorrect Answer
    D Number of referrals for the loan application. Correct Answer Incorrect Answer
    E Social media activity during loan approval. Correct Answer Incorrect Answer

    Solution

    Explanation: The number of recent credit inquiries is a critical metric in assessing a customer's creditworthiness. A high number of inquiries often indicates financial stress or aggressive credit-seeking behavior, which correlates with an increased risk of loan default. Financial institutions incorporate this metric into credit scoring models, such as FICO, as it provides a quantifiable indicator of potential risk. Coupled with other variables like payment history and debt-to-income ratio, this measure helps lenders make informed decisions and minimize default risk. Advanced data analysis techniques enhance its predictive accuracy, ensuring robust risk management. Option A: Geographic location might reveal demographic insights but is not directly predictive of loan default. Option C: Time spent on an application form has minimal correlation with default risk. Option D: Referrals indicate network strength but do not provide risk insights. Option E: Social media activity is subjective and unreliable for risk prediction in loan contexts.

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