Intro to Credit (cards, loans, and scores)

What is a credit card?

• The ace of diamonds

• A large plastic card designed to ruin consumer's finances

• A small plastic card issued by the government attached to a line of credit

• A small plastic card issued by a bank and attached to a line of credit

Answer explanation

A credit card is a small plastic card issued by a bank that allows consumers to borrow money up to a certain limit, making purchases on credit. This definition accurately describes its function and issuer.

What is debt?

• Another word for death

• Something, typically money, that is owed or due

• A loan on which you do not have to pay interest

• That which is incurred during childhood and consummated in college

Answer explanation

Debt refers to something, typically money, that is owed or due. This definition clearly distinguishes it from other options, making it the correct choice.

What is a credit score?

• a number between 300 and 850 representing your creditworthiness

• a statistical number that evaluates a consumer's creditworthiness and is based on credit history.

• Often referred to as a FICO score

• All of the above

Answer explanation

A credit score is a number between 300 and 850 that evaluates a consumer's creditworthiness based on credit history, often referred to as a FICO score. Therefore, 'All of the above' is the correct answer.

What is an interest rate?

• it is your level of interest about a certain topic expressed as a percentage of your total interest

• The amount in terms of dollars that you have to pay back on a purchase

• it is the rate at which your interest in something expires. The higher the number, the quicker your interest expires

• The amount in terms of a rate or percentage that you have to pay back on an amount borrowed

Answer explanation

An interest rate is the percentage you pay back on borrowed money. It represents the cost of borrowing, making the correct choice "The amount in terms of a rate or percentage that you have to pay back on an amount borrowed."

What is a credit report?

• A detailed report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness

• A detailed report of a bank's credit history prepared by a credit expert and used by consumers in determining a bank's creditworthiness

• A report which shows which credit cards are better than others

• A report invented by Allan Greenspan and credited to Al Gore

Answer explanation

A credit report is a detailed report of an individual's credit history, created by a credit bureau. Lenders use it to assess a loan applicant's creditworthiness, making the first answer choice correct.

The process of collecting funds that are owed and past due is called...

• gathering

• dollar collecting

• overdrafting

• collections

Answer explanation

The correct term for the process of collecting funds that are owed and past due is 'collections.' This term specifically refers to the activities involved in recovering overdue payments.

What is bankruptcy?

• A point in time where everything a person owns has been given to charity

• A legal proceeding involving a person or business that is unable to repay outstanding debts in which the debtor's assets are measured and evaluated, whereupon the assets are used to repay a portion of outstanding debt

• When a bank is built on top of a volcano and the volcano erupts causing a bank(e)ruptcy

• A legal proceeding involving a person or business that is more than capable of repaying outstanding debts in which all of the debtor's assets are measured and evaluated, and then given away to those in need

Answer explanation

Bankruptcy is a legal process for individuals or businesses unable to repay debts. The correct choice describes how assets are evaluated and used to pay off some of the outstanding debt, which aligns with the definition of bankruptcy.

When I apply to borrow money for a car, the loan company will most likely look at my credit history.

• True

• False

Answer explanation

True. When applying for a car loan, lenders typically review your credit history to assess your creditworthiness and determine the terms of the loan.

I should review my credit report for errors.

• True

• False

Answer explanation

True. Reviewing your credit report for errors is essential to ensure accuracy, as mistakes can affect your credit score and financial opportunities.

A credit report contains my personal information such as my address and social security.

• True

• False

Answer explanation

True. A credit report includes personal information such as your address and social security number, which are essential for identifying your credit history.