Credit Exam Review (Ahrens)

1. Shira is trying to decide between getting a debit card, a prepaid debit card, and a credit card. Which statement is true?

• All 3 cards are completely different
• Debit cards and prepaid debit cards are the same
• Debit cards and credit cards are the same
• All 3 cards are completely the same

2. Which of the following statements comparing credit and debit cards is TRUE?

• Far more businesses accept credit cards than debit cards
• Credit cards pull money directly from your bank account, while debit cards get their money from Visa or Mastercard
• Credit card companies provide you with a monthly statement, while debit cards do not
• With debit cards, you're spending your own money at point of sale, but with credit cards, you're getting a loan that you need to pay back later

3. Which of the following is most likely to represent a SECURED loan? (hint: Collateral)

• A student loan
• A credit card
• A prepaid debit card
• An auto loan

4. Which of these statements best explains why it's often a good idea to pay more than the monthly amount due on a loan?

• Every time you pay extra, the lender will reduce the interest rate they're charging by a small amount
• The extra payment will be applied to the principal amount you owe, which will pay down your debt more quickly
• The extra payment will be applied to the interest you owe, which will reduce the overall cost of your loan
• Amortized loans typically have much higher interest rates than credit cards, so they're the best place to put your extra cash

5. If you are having trouble making auto loan payments and are really following a tight budget, which recommendation below represents the WORST advice?

• Find an extra source of income by taking a second job, working longer hours, or borrowing from family if they can afford to help
• Stop making payments on some of your debts so you can focus on getting the most expensive or largest debts under control
• Continue making all payments and call your lenders and see if you can negotiate lower monthly payments, lower interest rates, or longer terms
• Explore whether a free or non-profit credit counseling service could help

6. Which of these credit payback strategies would lead to the HIGHEST overall cost?

• Paying off your credit card bill in full every month
• Paying 20% of your credit card balance every month on time
• Making the minimum payment (3% of your credit card balance) every month on time
• Making the minimum payment (3% of your credit card balance) every month with an occasional late payment

7. Taylor is about to go car shopping, and she has $5000 saved that she can use for a down payment while still having extra cash in her emergency fund. She expects the exact model car she’s looking for to cost $35,000. If her top priority is having the lowest monthly payments possible, which advice should she follow?

• Put in $0 for your down payment, and choose a loan with a short term length
• Put in $2500 for your down payment, and choose a loan with a short term length
• Put in $3500 for your down payment, and choose a loan with a long term length
• Put in $5000 for your down payment, and choose a loan with a long term length

8. Benjamin wants to improve his credit score. How is his credit score calculated?

• Credit score is calculated based on the number of times Benjamin has applied for a loan.
• Credit score is calculated based on the number of credit cards Benjamin has.
• Credit score is calculated using various factors such as payment history, credit utilization, length of credit history, types of credit used, and new credit inquiries.
• Credit score is calculated based on the amount of money Benjamin earns.

9. What is an advantage of using a credit card?

• It will not affect your credit score or credit history
• Since it is tied directly to your checking account, it prevents you from spending money you do not have
• If you need to carry a balance, the interest rates are generally quite low (less than 5%)
• You can make an emergency purchase that you otherwise don’t have the money to pay for right now

10. Lily, Abigail, and Ethan are discussing ways to maintain a good credit score. Which of the following actions can negatively impact their credit scores?

• Applying for a mortgage loan
• Having a long credit history
• Paying off their credit card balance in full every month
• Late or missed payments, high credit card balances, applying for too much new credit, and having a short credit history.