Credit Card Concepts Quiz

Which best describes how a credit card works?

• The credit card company gives you free money to spend.
• The credit card company extends you a line of credit, and you have to pay a set amount each month.
• The credit card company extends you a line of credit, and you can choose to pay the balance in full or make a minimum payment each month.
• You must pay the full balance every month with no option for a minimum payment.

What is the advantage of paying your credit card balance in full each month?

• You increase your credit limit immediately.
• You avoid paying any interest and fees.
• You earn more rewards and cashback.
• Your credit score will instantly improve.

What is an outstanding balance?

• The amount you still owe after making your most recent payment.
• The total limit available on your credit card.
• The amount of interest charged each month.
• The balance that has been paid in full.

Why is it more difficult to get out of debt when only paying the minimum payment?

• The credit card company charges extra fees for minimum payments.
• Most of your minimum payment goes toward rewards, not reducing the balance.
• The majority of your minimum payment is going toward interest and finance charges, leaving only a small amount toward the principal.
• Minimum payments increase your interest rates.

The video advises you to "be a deadbeat." What does that mean in terms of credit card use?

• Pay your credit card bill in full and on time every single month, thus paying no interest or fees.
• Avoid paying your credit card bill altogether to save money.
• Make only the minimum payment to avoid high charges.
• Use your credit card frequently but never pay the balance in full.

What is the definition of an interest rate?

• The amount of money you borrow
• The cost you pay for borrowing money
• The monthly fee for using a credit card
• The balance left on your credit card

What does APR stand for?

• Annual Payment Rate
• Annual Percentage Rate
• Average Payment Ratio
• Additional Payment Rate

What happens when you carry a balance on your credit card?

• You are charged interest on the unpaid amount
• Your balance decreases over time
• You avoid paying any interest
• You receive extra rewards points

What can lead to a snowball effect in credit card debt?

• Making extra payments each month
• Paying your balance in full
• Paying interest on interest
• Getting a lower interest rate

What is a common consequence of making only the minimum payment on your credit card?

• It reduces your principal balance quickly
• It avoids all interest charges
• It leads to paying more interest over time
• It helps pay off your debt faster