Credit Basics - Unit 2

Choose the option that best completes this sentence: When using a credit card...

• you will pay interest whether or not you pay your bill every month.

• you are transferring money from your savings account directly to another party.

• you are getting a short-term loan to allow you to purchase an item now which you can pay for later.

• you always have the option to wait to make a payment because late payments do not affect your credit.

Which statement best describes the basic relationship between savers and borrowers at a traditional bank?

• The bank pays interest to the savers and gives loans at the SAME interest rates to the borrowers, so it all balances out.

• The bank pays interest to the savers and gives loans to a HIGHER interest rate, so the bank makes money.

• The bank pays interest to the savers and gives loans at a LOWER interest rate, so the bank makes money.

• The bank makes no money from savers or borrowers.

Which of the following is an example of credit?

• Getting a certificate of deposit (CD) from the bank.

• Paying for college with money your parents helped save.

• Splitting the cost of a meal with a friend.

• Taking out a mortgage to buy a home.

When you are buying a car or a house for example, which of the following statements is true?

• You can typically reduce your loan costs by finding the highest interest rate.

• You can typically reduce your loan costs by finding the longest term.

• You can typically reduce your loan costs by making a large down payment.

• You can typically reduce your loan costs by making a small down payment.

Which of the following statements is true?

• To avoid appearing biased, a bank or other lender must offer the same interest rate to all of its borrowers.

• To avoid appearing biased, a bank or other lender must offer the same loans to any borrower.

• Banks can pick both the interest rate and the borrowers they lend money to.

• Banks can pick the borrowers they lend money to, but must set the same interest rate for everyone.

Pretend you take out a 30-year fixed rate mortgage for $250,000. Which of the following statements would be true?

• The payment amount you owe every month will be the same.

• The amount of interest you pay every month will be the same.

• The amount of principal you pay every month will be the same.

• You will not be allowed to pay more than the amount due every month.

Which of the following is a TRUE Statement describing the benefits of an installment loan?

• An installment loan allows you to make one large purchase, even if you don't have all the money for it up front.

• An installment loan does not require a credit check, so they are easy to obtain.

• An installment loan allows you to make many small purchases as you need them, as long as your're under your credit limit.

• An installment loan does not require monthly payments, so they can be paid back when the borrower is ready.

An excellent credit score is

• 500

• 600

• 700

• 800

What is the guideline for the maximum amount you should owe each month for loan payments (not including a home loan payment)?

• 10 Percent of monthly gross income

• 10 percent of monthly net income

• 20 percent of monthly gross income

• 20 percent of monthly net income

Which is NOT a type of credit?

• Car loan

• debit card

• phone service

• credit card