Managing Credit Flashcard

Front

What is a credit score and why is it important?

Back

A credit score is a numerical representation of a person's creditworthiness, based on their credit history. It is important because it affects the ability to obtain loans, credit cards, and favorable interest rates.

Front

What are the five categories that make up a credit score?

Back

The five categories are: 1) Payment history (35%), 2) Credit utilization (30%), 3) Length of credit history (15%), 4) Types of credit used (10%), 5) New credit inquiries (10%).

Front

What does 'payment history' refer to in the context of a credit score?

Back

Payment history refers to whether a person has paid their past and current credit accounts on time. It is the most significant factor in determining a credit score.

Front

What is the snowball method in debt repayment?

Back

The snowball method is a debt repayment strategy where a person pays off debts starting with the smallest balance first, gaining momentum as each debt is eliminated.

Front

What is the recommended credit utilization percentage to maintain a good credit score?

Back

It is recommended to keep credit utilization under 30% of the total available credit.

Front

What is a credit report?

Back

A credit report is a detailed report of an individual's credit history, including information about past and current credit accounts, payment history, and any bankruptcies or foreclosures.

Front

True or False: Most Americans have large amounts of money in their savings accounts and hardly any debt.

Back

False. Many Americans carry significant debt and have limited savings.

Front

How does credit utilization affect your credit score?

Back

Credit utilization affects your credit score by showing how much of your available credit you are using. High utilization can lower your score, while low utilization can improve it.

Front

What factors can negatively impact your credit score?

Back

Factors that can negatively impact your credit score include late payments, high credit utilization, having too many new credit inquiries, and having a short credit history.

Front

What is the difference between a hard inquiry and a soft inquiry?

Back

A hard inquiry occurs when a lender checks your credit for lending purposes, which can affect your score. A soft inquiry occurs when you check your own credit or when a lender checks your credit for pre-approval, which does not affect your score.