Understanding Credit and Loans Basics

What is credit?

• A type of savings account

• An agreement used to borrow money to make purchases

• A form of investment

• A method of earning interest

Which of the following is a form of credit?

• Savings account

• Credit card

• Checking account

• Certificate of deposit

How do credit cards differ from debit cards?

• Credit cards withdraw money directly from your account

• Credit cards allow you to borrow money from the credit card company

• Debit cards offer reward programs

• Debit cards require you to pay interest

What is a credit rating?

• A score based on your savings

• A rating given by financial institutions based on your financial history

• A measure of your income level

• A type of loan

Why is a higher credit rating beneficial?

• It increases your monthly expenses

• It allows you to take out higher price loans with less interest

• It decreases your ability to borrow money

• It limits your purchasing power

Explain how credit cards can help build credit.

• By saving money in a bank account

• By borrowing money and paying it back on time, which is reported to credit agencies

• By investing in stocks

• By earning interest on deposits

What is the relationship between credit rating and interest rates on loans?

• Higher credit ratings lead to higher interest rates

• Higher credit ratings lead to lower interest rates

• Credit ratings do not affect interest rates

• Interest rates are only affected by the loan amount

Identify a benefit of using credit cards with reward programs.

• They increase your debt

• They offer cash back or points for purchases

• They charge higher interest rates

• They limit your spending

Describe a simple procedure to maintain a good credit rating.

• Avoid using credit cards

• Pay off your credit card balance in full and on time each month

• Only use cash for purchases

• Open multiple credit accounts

What happens if you do not pay back the borrowed money on a credit card?

• Your credit rating improves

• You incur fees and interest charges

• You earn rewards

• Your debt decreases