The article presents a theory about how credit scoring works and how lenders set interest rates based on the risk of borrowers defaulting. The theory suggests that lenders use borrowers' past borrowing and repayment behavior to determine their credit score, which reflects their likelihood of defaulting. The study shows that credit scores play a significant role in how lenders offer credit to consumers, especially those with lower credit scores. The research also indicates that legal restrictions on how long adverse events can affect credit records can impact consumer behavior and welfare.