Unit 3 Credit Test Practice 2

Which of the following statements comparing credit and debit cards is TRUE? 

• Far more businesses accept credit cards than debit cards 

• Credit cards pull money directly from your bank account, while debit cards get their money from Visa or Mastercard 

• Credit card companies provide you with a monthly statement, while debit cards do not 

• With debit cards, you're spending your own money at point of sale, while with credit cards, you're promising to pay back the money eventually 

Answer explanation

If a business accepts a credit card, it also accepts a debit card and vice versa.

Debt Cards AND Credit Cards provide you with a a monthly statement.

Debt Cards pull money from your bank account.

The shorter your term length, the ________ your monthly payments, and the _______ the total interest you will pay. 

• higher, lower 

• higher, higher 

• lower, lower 

• lower, higher 

Answer explanation

The SHORTER the time you borrowed money, the HIGHER your monthly payments, and the LOWER your interest will be.

If you are having trouble making auto loan payments, and are really following a tight budget, which recommendation below represents the WORST advice? 

• Find an extra source of income by taking a second job, working longer hours, asking for a raise, etc 

• Stop making payments on some of your debts so you can focus on getting the most expensive or largest debts under control 

• Continue making all payments and call your lenders and see if you can negotiate lower monthly payments, lower interest rates, or longer terms 

• Reduce spending in some other area of your budget so you can direct more funds toward debt payments 

Answer explanation

NEVER stop making payments. This will impact your APR (interest rate), you will get late fees, and your credit will drop.

What financial product am I? I am a type of credit card that requires cardholders to make a security deposit equal to the credit limit on their account. Due to this deposit requirement, I am often a good choice for young people looking to establish a credit history. 

• Standard credit card 

• Secured credit card 

• Overdraft credit card 

• Rewards credit card 

What is an advantage of using a credit card? 

• It will not affect your credit score or credit history 

• Since it is tied directly to your checking account, it prevents you from spending money you do not have 

• If you need to carry a balance, the interest rates are generally quite low (less than 5%) 

• If you pay off your balances every month in full, it's like getting a short-term interest-free loan