Unit 5 Study Guide - Financial Literacy

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

• Payment history and total debt

• 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...

• 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

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

Theo has significant debt and is considering filing for Chapter 7 bankruptcy. He should try all of the following strategies before filing for bankruptcy, EXCEPT...

• Meeting with a credit counselor

• Paying a debt settlement company

• Using a debt repayment strategy, like the Snowball or High Rate Method

• Setting up a debt management plan

All of the following would show up on a credit report, EXCEPT...

• Salary of your current job

• Payment history of your car loan

• Credit card payment history

• Student loan activity

What is the difference between Chapter 7 and Chapter 13 bankruptcy?

• Chapter 7 bankruptcy is for individuals; Chapter 13 bankruptcy is for corporations

• Chapter 7 bankruptcy sells your assets; Chapter 13 bankruptcy allows you to keep assets if you follow a repayment plan

• Chapter 7 bankruptcy only eliminates student loan debt; Chapter 13 bankruptcy eliminates all your debts

• There is no meaningful difference; both Chapter 7 and Chapter 13 bankruptcy clear your debts by selling off your assets and stay on your credit report for 10 years

Your friend confides in you that he has a low credit score. What is the single best way for him to improve his score?

• Cancel his credit cards

• Make on-time payments

• Get a car loan

• Check his credit score

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

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

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

• 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

How can debt increase a person’s net worth?

• The more debt you take on, the higher your credit score

• Debt allows you to buy valuable assets, like a house

• Using debt, you can spend more than you earn

• Debt increases your liabilities, like your credit card balance

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?

• 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

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

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

It is illegal for a lender to do all of the following, EXCEPT...

• Charge someone a high interest rate (above 20% APR) on a credit card

• Discourage someone from applying for a home loan based on their race

• Publish someone’s credit report publicly online

• Change the terms of someone’s loan without notifying them