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WorksheetsTypes of Credit and Credit Cards
Total questions: 65
Worksheet time: 32mins
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, while with credit cards, you're promising to pay back the money eventually
What financial product am I? I am a type of credit card that requires cardholders to make a security deposit equal to the credit limit on their account. Due to this deposit requirement, I am often a good choice for young people looking to establish a credit history.
Standard credit card
Secured credit card
Store credit card
Rewards credit card
Which of the following are examples of fixed rate types of credit?
Small Business Loan
Auto Loan
Mortgage
Credit Card
Debit Card
Which of these statements best explains why it's often a good idea to pay more than the monthly amount due? Reflect back to our amortization activities.
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
When loans are amortized, monthly payments are _______ , while the interest portion of the monthly payment ________ and the principal portion of the monthly payment _______ over time.
Constant, Increases, Increases
Constant, Decreases, Increases
Variable, Decreases, Increases
Variable, Decreases, Decreases
The shorter your term length, the _______ your monthly payments, and the _______ the total interest you will pay.
higher, lower
higher, higher
lower, lower
lower, higher
Which of these credit payback strategies would lead to the HIGHEST interest charges?
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
Elizabeth is considering buying a $30,000 car. Which of these financing options will likely lead to the LOWEST monthly payment?
$3000 down payment, 6% interest, 84 months
$3000 down payment, 6% interest, 60 months
$0 down payment, 6% interest, 60 months
$0 down payment, 0% interest, 36 months
Reading through a credit card disclosure (aka the Schumer Box), you see the APR for a specific card is set at 9.99% - 23.99%. Which statement is true?
When given a range of APRs like this, you can assume most cardholders pay the lowest rate listed
Your APR will be within that range, depending on the strength of your credit history
With credit card APRs, cardholders like higher APRs because they earn more
The APR on credit cards is usually fixed so it won't be adjusted as long as you are a cardholder
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%)
If you pay off your balances every month in full, it's like getting a short-term interest-free loan
Which of the following statements is CORRECT about secured loans?
They are an example of a credit card
They require collateral, in the form of assets like a car or a home, to be exchanged for the loan
In the event of default, the borrower loses nothing except for the down payment
They usually have higher interest rates as compared with unsecured loans
As a young adult, all of the following are good strategies for building credit, EXCEPT:
Open a credit card, with your parent or guardian as a cosigner
Open a checking account, and start using a debit card
Become an authorized user on a credit card used by your parent or guardian
Open and use a secured credit card
Each of the following financial products will help you build a credit history EXCEPT...
Secured credit card
Debit card
Auto loan
Credit card
What is APR?
the interest rate that you will pay on any unpaid balances
the interest rate that you will pay on any purchases
the fee you pay yearly for being a cardholder
the fee you pay monthly for being a cardholder
What is an annual fee?
the interest rate you pay on any unpaid balances
the interest rate you pay on any purchases
the yearly fee you pay for being a cardholder
the monthly fee you pay for being a cardholder
What is a credit limit?
the maximum amount of money you can borrow with one card
the minimum amount of money you can borrow with one card
the amount of money that you borrowed
the amount of money that must be repaid
What is a credit balance?
the maximum amount of money you can borrow with one card
the minimum amount of money you can borrow with one card
the actual amount of money that you borrowed/spent
the amount of money that must be repaid
What is a minimum payment?
the minimum amount of money you can pay back - you will have to pay interest on the unpaid balance
the minimum amount of money you can pay back - you will NOT have to pay interest
the maximum amount of money that you can borrow with a card
the amount that will be shown on your bill
Paying only the minimum payment will positively affect your credit score.
True
False
Paying only the minimum payment will cost you interest. You will end up paying a lot more for an item in the end!
True
False
How do you determine your revolving utilization percent?
YOUR CREDIT DEBT ÷ YOUR CREDIT LIMIT
YOUR MIN. PAYMENT ÷ YOUR CREDIT BALANCE
YOUR CREDIT LENGTH ÷ YOUR CREDIT LIMIT
YOUR CREDIT LIMIT ÷ YOUR CREDIT BALANCE
What is the maximum number of cards you should have when you are new to building credit?
1
2
5
8
What should you never do?
cancel your oldest credit card
cancel your youngest credit card
ask to increase your credit limit
pay your credit balance in full
Card A has an APR of 17.65% and has an annual fee of $95. Card B has an APR of 18.21% and has an annual fee of $0. Which card is better?
Card A
Card B
Card A has an APR of 21.99% and Card B has an APR of 16.98%. Which card do you choose?
Card A
Card B
The yearly percentage rate charged when a balance is held on a credit card.
Prime Rate
Annual Percentage Rate
Monthly Percentage Rate
Credit Rate
A cash loan from a credit card using an ATM or bank withdrawal.
Balance Transfer
Cash Advance
Credit Rating
Default
The time between billing statements, usually 28-31 days.
Average monthly balance
Annual Percentage Rate
Payment Due Date
Billing Cycle
The extent to which a person or company is considered suitable to receive financial credit, often based on their reliability in paying money back in the past.
Responsible
Default
Net Worth
Creditworthiness
A charge that a business has to pay every time it processes a customer's electronic payment.
Annual Percentage Rate (APR)
Finance Charge Calculation Method
Transaction Fee
Credit Limit
a period of time beyond a due date during which a financial obligation may be met without penalty or cancellation
Adjusted Balance
Annual Fees
Credit Limit
Grace Period
The maximum amount of credit a financial institution extends to a client.
Credit Limit
Finance Charge Calculation Method
Transaction Fee
Minimum Monthly Payment
What you're charged when your credit card payment is received after the due date on your bill, or you've paid less than the minimum amount required.
Credit Limit
Finance Charge Calculation Method
Transaction Fee
Late Payment Fee
Average Daily Balance x Annual Percentage Rate (APR) x Number of Days in Billing Cycle ÷ 365
Credit Limit
Finance Charge Calculation Method
Transaction Fee
Late Payment Fee
How do banks make money off of the credit they issue?
They charge a large, one-time fee at the start of the loan
They take out a small fee each month from your checking account
They charge a high interest rate on the loan
This is a trick question - they DON'T make money!
Which of the following is NOT a typical type of credit?
Mortgage
Overdraft
Credit Card
Pre-Paid Debit Card
Which of the following could be a SECURED loan? (hint: choose 2 correct answers)
Auto loan
Student loan
Mortgage
Overdraft
If the collateral for your secured loan can be taken away, why get a secured loan at all?
Because they usually have a higher interest rate
Because they usually have a lower interest rate
Banks give you an extra 90 days to make a missed payment
Banks typically don't charge interest for the first 12 months
Why does the amount of INTEREST you owe on a loan decrease over time?
The institution trusts you more, so they lower the interest
With each payment, principal increases; so interest lowers
Banks are legally required to lower interest rates over time
With each payment, principal decreases, so interest lowers
What information on a Schumer Box should you focus on when choosing a credit card? (hint: choose 3 correct answers)
The term of the credit card
Annual Percentage Rate (APR)
Grace Period
Fees
When can personal loans be a better option than credit cards? (hint: choose 2 correct answers)
If you want to earn rewards and enjoy travel benefits
If you want a lower interest rate
If you want purchase protection & warranties
If you need a lump sum of money right away
Which is TRUE about Payday loans?
You can pay them back in installments
You are charged a 1-time fee for the loan
Most people successfully pay these loans back
You need a credit card account to get one
Which is FALSE about what can happen if you fail to make your mortgage payments?
After one missed payment, you can lose your home
You will be charged fees
Your credit score can take a hit
Foreclosure process starts after 30 days of missed payment
How are credit cards and debit cards different?
They're both linked to a checking account in different ways
Some debit cards say VISA on them; credit cards don't
With a credit card, you are borrowing from yourself
A credit card can offer perks such as purchase protection
They are called revolving credit accounts because
it was a revolutionary concept when first created.
these accounts circle around your credit.
they can be an ongoing cycle of borrowing and repaying.
An unsecured loan is one that
has something of value the lender can take in case of default.
has nothing of value the lender can take in case of default.
is specifically for buying a house.
Which of the following is not a type of revolving account?
Gift card
Store credit card
Gas Card
Visa Card
Which of the following is not an example of a secured loan?
Home loan
Car loan
Student loan
Boat loan
Why are revolving credit accounts a dangerous idea?
The interest rates on them are very high.
It is easy to overspend and get deep in debt.
They can lead to impulse buying.
All are dangers of revolving credit.
Which age group only needs to meet the credit card company's qualification criteria in order to get a credit card?
Under 18
18 - 21
Over 21
Which age group must prove they have the income to pay their debt in order to get a credit card in their own name; if they can't, they will need someone to co-sign on the credit card?
Under 18
18 - 21
Over 21
Which age group cannot get a credit card in their own name?
Under 18
18 - 21
Over 21
Which of the following is not a way credit card companies determine the minimum monthly payment on an account?
2 - 2.5 % of the current unpaid balance
A preset minimum dollar amount they want (like $20)
A calculation based on the current balance, interest rate, and loan term
What happens when you only pay the minimum monthly payment on a credit card instead of a level amount every month?
It takes longer to pay off the credit card balance.
You pay more interest.
Both options are true.
What happens to the minimum monthly payment required on a credit card as the unpaid balance goes down?
The monthly payment goes UP
The monthly payment goes DOWN
The monthly payment STAYS THE SAME
TRUE or FALSE: You can get a cash advance on a credit card, but it is very expensive.
TRUE
FALSE
An "introductory rate" on a credit card is for a short period of time and is
higher than its regular rate.
lower than its regular rate.
the same as than its regular rate.
TRUE or FALSE: You will pay a finance charge every month, even if you pay off the entire balance before the grace period ends.
TRUE
FALSE
Which of the following is a characteristic of an annual fee?
It's the annual amount of interest you will pay.
It's a fee you pay just for having the card, even if you don't charge any purchases.
Both options are true.
What is a penalty APR?
A one-time fee you get charged for a late payment.
The higher interest rate your credit card company start charges you after you are very late on a payment.
Both options are true
What charges can you be required to pay if your credit card is lost or stolen?
$0 if you report it before something is fraudulently charged.
$0 if the credit card number is stolen and used.
$50 if you don't report the loss or theft immediately
All options are true.
Which of the following are required disclosures (things they must tell you) by credit card companies?
On your credit application, they must clearly tell you the interest rates and fees related to the card.
On you billing statement, they must clearly tell you how long it will take to pay off the card when paying only the minimum payment vs. some fixed amount.
Both options are required
