What does a borrower’s FICO score indicate to lenders?

A borrower's FICO score is a significant metric used by lenders to determine the individual's creditworthiness. It provides a snapshot of the borrower's credit history, which is essential in evaluating the risk of lending money. A higher FICO score indicates that the borrower has a good track record of managing credit effectively, paying bills on time, and maintaining low balances on credit cards. Consequently, lenders view a high FICO score as a sign of a reliable borrower, which may lead to more favorable loan terms, such as lower interest rates or higher loan amounts.

Other options, while relevant to loan agreements, do not pertain directly to what the FICO score indicates. The type of loan, whether it’s a mortgage or deed of trust, adjustable rates, or prepayment penalties are considerations separate from the assessment of a borrower's credit risk based on their FICO score. Thus, the correct answer highlights the FICO score's role in indicating the borrower's overall credit health and suitability for obtaining loans.