Types of Credit

What is an advantage of using a credit card?

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

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

• You can make an emergency purchase that you otherwise don’t have the money to pay for right now

• It will not affect your credit score or credit history

What summarizes your credit history based on your financial behavior?

• Credit Score

• Credit Report

• Balance

• Credit Limit

An installment loan is an "open line of credit" that is used for purchases where the payment amount varies monthly?

• True

• False

Which of the following is NOT a component of an loan?

• Statement

• Loan Term

• Interest Rate

• Principal

When loans are amortized (installments), monthly payments are _______ , while the shorter your term is means the _________ monthly payments and the ________ total interest you'll pay.

• Constant, higher, less

• Changes, higher, less

• Constant, less, higher

• Changes, less, higher

Opening multiple accounts around the same time may lower your credit score?

• True

• False

If the bank tells you that you have 5 years to pay back your loan, the five years is considered what?

• The Principal

• Collateral

• The Loan Term

• The Interest Rate

Which of these statements best explains why it's often a good idea to pay more than the monthly amount due on an installment loan?

• The extra payment will be applied to the interest you owe, which will reduce the overall cost of your loan

• The extra payment will be applied to the principal amount you owe, which will pay down your debt more quickly

• Amortized loans typically have much higher interest rates than credit cards, so they're the best place to put your extra cash

• Every time you pay extra, the lender will reduce the interest rate they're charging by a small amount

As a young adult, all of the following are good strategies for building credit, EXCEPT:

• Open and use a secured credit card

• Open a credit card, with your parent or guardian as a cosigner

• Become an authorized user on a credit card used by your parent or guardian

• Take out a payday loan

Which of the following is TRUE when you make only the minimum payment each month on your credit card?

• Your credit line is restored to its maximum amount

• It is the fastest way to pay off your debt

• You are charged interest on the remaining balance

• Credit card companies have permission to sell your info