FM * Managing Credit- Unit Test B

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

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

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

• Snowball method
• Make minimum payments
• High rate method
• Consolidate multiple debts into one new loan

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

• Your credit score
• 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

What does the term “buy, borrow, die” describe?

• The strategy used by wealthy Americans to leverage debt to minimize taxes
• The pattern where high-interest loans trap people in a cycle of debt
• The necessity of using debt to achieve common milestones, like buying a house
• The long-term nature of repaying large debts

You find an error on your credit report: Your credit card account indicates that you are 60 days late on your payment but you have bank records indicating that you have always made on-time payments. What should you do FIRST?

• Contact the credit card company to have them fix it
• Contact the credit reporting agency
• Wait a few weeks to see if it gets resolved
• Call the police to report the possible identity theft

Frank and Jasmine 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 Jasmine 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

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

• Only consumers with high scores are approved for credit
• Consumers with low scores get lower interest rates on loans than those with high scores
• Your credit score can determine whether you are approved for a loan and what the interest rate on that loan will be
• It generally has no impact on your financial situation

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

Which free credit report service is authorized by federal law but only accessible once per year?

• AnnualCreditReport.com
• Credit Karma
• Credit Wise
• Wallet Hub