Understanding Credit Basics Quiz

What is the definition of credit?

• Money you earn from your job

• Borrowed money that you agree to pay back later

• Money you save in a bank account

• A type of investment

Which of the following is NOT a common use of credit?

• Buying groceries every week

• Purchasing a car

• Buying a house

• Paying for emergencies

What does a credit score represent?

• The amount of money in your savings account

• How trustworthy you are at repaying debt

• The number of credit cards you own

• Your monthly income

Which factor has the greatest impact on your credit score?

• Credit mix

• Payment history

• New credit inquiries

• Length of credit history

If you want to build your credit, which of the following actions should you take?

• Open many new credit accounts quickly

• Always pay your bills on time

• Use more than 50% of your credit limit

• Only use cash for all purchases

Why is it important to keep your credit utilization below 30%?

• It helps you earn more rewards points

• It shows lenders you are not overusing your credit, which can improve your credit score

• It increases your monthly income

• It allows you to avoid paying any interest

Which of the following is a responsible way to recover from bad credit?

• Open several new credit cards at once

• Pay off past-due amounts and set up payment reminders

• Ignore your credit card bills

• Take out payday loans

How can having a good credit score impact your ability to get a loan?

• It makes it harder to get approved for loans

• It increases the interest rates you pay

• It makes it easier to get approved and may lower your interest rates

• It has no effect on loans

Imagine you have missed several credit card payments and your credit score has dropped. What is a strategic plan you could use to improve your credit over time?

• Continue using your credit cards without making payments

• Stop using credit cards, pay off past-due amounts, and set up automatic payments for the future

• Open more credit accounts to increase your available credit

• Take out a payday loan to pay your bills

A friend wants to buy a car but has a low credit score. Using your knowledge of credit, what advice would you give them to improve their chances of getting approved for a car loan in the future?

• Apply for as many loans as possible right now

• Focus on paying bills on time, reduce credit card balances, and avoid opening new accounts too quickly

• Ignore their credit score and hope it improves on its own

• Only use cash for all purchases