Loan and Credit Flashcard

Front

What is a debt-to-income ratio?

Back

A measure that compares an individual's total monthly debt payments to their gross monthly income, used to assess financial health.

Front

How can you improve your debt-to-income ratio?

Back

By paying off debts, increasing income, or reducing monthly debt payments.

Front

What is the most crucial aspect of creditworthiness in determining a FICO score?

Back

Payment history, which accounts for 35% of the FICO score.

Front

What happens to your credit score if you make late payments?

Back

Your credit score will likely decrease, as late payments negatively impact your payment history.

Front

What is the impact of high credit card balances on your credit score?

Back

High balances can increase your credit utilization ratio, which may lower your credit score.

Front

What is a rewards credit card?

Back

A credit card that offers points, cash back, or other rewards for purchases made with the card.

Front

How does interest on a credit card work?

Back

Interest is charged on the remaining balance if not paid in full by the due date, typically calculated as an Annual Percentage Rate (APR).

Front

What is the difference between a debit card and a credit card?

Back

A debit card withdraws money directly from your bank account, while a credit card allows you to borrow money up to a certain limit.

Front

What is an APR?

Back

Annual Percentage Rate, the annual rate charged for borrowing or earned through an investment, expressed as a percentage.

Front

What is a late fee?

Back

A charge imposed when a payment is not made by the due date.