Select the statement below that accurately describes a characteristic of a credit card.

Making full payments on-time every month is the only way to avoid interest charges

You owe the same payment every month

You must have money deposited into a checking account to use the credit card for purchases

Which of the following statements is CORRECT about secured loans?

If the borrower does not make payments, the lender can repossess the item

They are a good choice to use for student loans

In the event of default, the borrower loses nothing except for the down payment

They usually have higher interest rates as compared with unsecured loans

An excellent credit score will help with which aspect of car financing?

Qualifying for a low interest rate

Bargaining for a great sales price

Having a wide selection of term lengths

Amy and Chuck each buy a house in the same neighborhood for $250,000. Amy's monthly mortgage payment is $400 more per month than Chuck's. Which one of the following statements could explain this difference?

Amy chose a shorter term for her mortgage, so her monthly payments are higher

Amy made a larger down payment, so her monthly payments are also larger

Chuck chose a shorter term for his mortgage, so his monthly payments are also lower

Chuck has a lower credit score, so his interest payments are also lower

Why are payday loans so much easier to qualify for than traditional bank loans?

Payday loans require proof of employment or other regular income but not a credit check

Payday loans are only used by affluent households, and the banks know they have enough money to cover them

Payday loans are just another word for direct deposit, and almost all employers offer their employees direct deposit instead of a paper paycheck

Payday loans are typically for such small dollar amounts that no one cares if you repay them or not

Trudy tells her mom that she wants to buy a house within two years of graduating from college. Her mom says Trudy will need a down payment first. What is a down payment?

A large sum of money you pay when taking out a mortgage so that the principal of your loan is smaller

A specific type of tax advantaged bank account used for saving money to buy a house

The first year’s worth of property taxes, held in reserve

A prepayment to a real estate agent so that they will start helping you house hunt

Why would credit card companies prefer that their cardholders make the minimum monthly payment every month rather than paying their total balance in full?

This enables the credit card company to make more money

This is required by federal law for tax purposes

This allows the card holder to pay their bill quickly and close the card when they’re ready

This helps cardholders develop financial independence

What are the two most important factors in calculating your credit score?

Payment history and types of accounts

Amounts owed and length of credit history

Length of credit history and new credit inquiries

Heather realized she has taken out too much debt and it has started to negatively impact her ability to budget. She has decided to pay off this debt in full as soon as possible. All of the following would be beneficial strategies EXCEPT…

Applying for another credit card to use in case she runs out of cash paying off her debt

Reducing spending by canceling some of her streaming subscriptions

Taking extra shifts at work to increase her income

Making more than the minimum required payment on her debt

Which of the following statements about credit scores does this bar graph support?

It is more difficult for young people to borrow because they have less payment history for a lender to rely upon

Credit scores tend to drop as you grow older because you are more likely to miss a payment at some point

When young people borrow, they are likely to have lower interest rates because their credit scores are lower

It is easier for young people to get loans at lower interest rates because they are likely to have never been late with a payment

Melvin is 19 years old and wants to begin establishing a credit history. Which action should he take to meet that goal?

Ask his parents to cosign a credit card or add him as an authorized user on their credit card

Always say "credit" when asked "credit or debit?" at a store

Any time he borrows money from a friend or family member, be sure to pay it back promptly

Take out some private student loans, even though he doesn't need them because he has grants and scholarships

Frank and Jasmere are each shopping for a new car for themselves. Each will need a $20,000 loan that they will pay back over a five year period. Frank has a credit score of 730 and Jasmere has a score of 600. Which of the following statements is TRUE?

Jasmere's monthly payment on the loan will be about $100 more than Frank's payment

Over the five year period, Jasmere and Frank will pay the same amount for the car loan

Frank's monthly payment on the auto loan will be about $100 more than Jasmere's payment

Lenders are not allowed to charge people different interest rates based on their credit scores

You have a credit card that you use regularly for small purchases with the goal of improving your credit score. Which strategy would have the GREATEST positive impact?

Use less than 30% of the credit limit and pay it off in full every month by the due date

Always carry a balance from month to month

Regardless of how much your balance is, make the minimum payment required on your credit card every month by the due date

Put the credit card in a drawer instead and don't ever use it

What strategy should you use to pay off multiple sources of debt if you want to pay the lowest amount of interest over time?

Consolidate multiple debts into one new loan

Who tracks all of your credit information?

Credit reporting agencies (Equifax, Experian and TransUnion)

Consumer Financial Protection Board (CFPB)

What is the general timeline to establish your first credit score?

Six months after you first actively use your credit

As soon as you apply for a credit card or loan

Once you pay all of your credit balances in full

Which best describes the Debt Snowball method for paying off debt?

Make the monthly minimum payments on all your debts, and then put any extra cash toward the debt with the lowest balance

Only make payments on your smallest debt first, then move on to your second smallest debt, and so on

Once your debt "snowballs" out of control, hire a certified credit counselor to help get your finances back on track

Make the monthly minimum payments on all your debts, and then put any extra cash toward the debt with the highest balance

Which of these represents a potential consequence of neglecting to pay your federal student loans?

Wages or tax refunds can be garnished

What benefits do you receive by taking out a loan with a cosigner?

You have a better chance of getting approved and getting a lower interest rate if the cosigner has good credit

You don’t get penalized for late payments

You get a discount on future loans after this one is paid off

You automatically get the same credit score as the cosigner once the loan is paid off

Which response best completes the sentence "It's best to begin establishing credit when you're young because ________" ?

You will likely need a credit history to rent your first apartment, finance your first car, or open an unsecured credit card

Accessing credit only becomes more expensive as you get older

Negative marks on your credit report go away faster for younger borrowers

Credit scores are free for anyone under the age of 25

The amount you can charge to a secured credit card is limited by…

The amount of money you deposit into an account as collateral

The total amount of money across all your bank accounts

How long you’ve had an account with the bank

How can your credit score impact your financial well-being?

Your credit score can determine whether you are approved for a loan and what the interest rate on that loan will be

Only consumers with high scores are approved for credit

Consumers with low scores get lower interest rates on loans than those with high scores

It generally has no impact on your financial situation

Unit 4 Credit Test

Authored by Jillian Lawson

Social Studies

12th Grade

Used 7+ times

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MULTIPLE CHOICE QUESTION

30 sec • 1 pt

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%)

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

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Unit 4 Credit Test

The average APR for a payday loan is closest to …

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

Which of the following is most likely to represent a fixed rate, secured debt?

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

When loans are amortized, monthly payments are _______ , while the amount of your monthly payment applied to interest ________ and the amount of your monthly payment applied to the principal _______ over time.

Which of the following is true about fixed and adjustable-rate mortgages?

What is an advantage of using a credit card?

A loan with a shorter term length will have __________ monthly payments, and you will pay __________ in total interest.

Select the statement below that accurately describes a characteristic of a credit card.

Which of the following statements is CORRECT about secured loans?

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When loans are amortized, monthly payments are _ , while the amount of your monthly payment applied to interest and the amount of your monthly payment applied to the principal _ over time.

A loan with a shorter term length will have monthly payments, and you will pay in total interest.