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Types of Credit - Unit Test

Total questions: 44

Worksheet time: 22mins

Name
Class
Date
1.
1. Shira is trying to decide between getting a debit card, a prepaid debit card, and a credit card. Which statement is true?
a)
All 3 cards are completely different
b)
Debit cards and prepaid debit cards are the same
c)
Debit cards and credit cards are the same
d)
All 3 cards are completely the same
2.
2. The average APR for a payday loan is closest to …
a)
4%
b)
14%
c)
40%
d)
400%
3.
3. Which of the following statements comparing credit and debit cards is TRUE?
a)
Far more businesses accept credit cards than debit cards
b)
Credit cards pull money directly from your bank account, while debit cards get their money from Visa or Mastercard
c)
Credit card companies provide you with a monthly statement, while debit cards do not
d)
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
4.
4. Which of the following is most likely to represent a fixed rate, secured debt?
a)
A student loan
b)
A credit card
c)
A prepaid debit card
d)
An auto loan
5.
5. Which of these statements best explains why it's often a good idea to pay more than the monthly amount due on an amortized loan?
a)
Every time you pay extra, the lender will reduce the interest rate they're charging by a small amount
b)
The extra payment will be applied to the principal amount you owe, which will pay down your debt more quickly
c)
The extra payment will be applied to the interest you owe, which will reduce the overall cost of your loan
d)
Amortized loans typically have much higher interest rates than credit cards, so they're the best place to put your extra cash
6.
6. If you are having trouble making auto loan payments and are really following a tight budget, which recommendation below represents the WORST advice?
a)
Find an extra source of income by taking a second job, working longer hours, or borrowing from family if they can afford to help
b)
Stop making payments on some of your debts so you can focus on getting the most expensive or largest debts under control
c)
Continue making all payments and call your lenders and see if you can negotiate lower monthly payments, lower interest rates, or longer terms
d)
Explore whether a free or non-profit credit counseling service could help
7.
7. When loans are amortized, monthly payments are _______ , while the amount of your monthly payment applied to interest ________ and the amount of your monthly payment applied to the principal _______ over time.
a)
Constant, Increases, Increases
b)
Constant, Decreases, Increases
c)
Variable, Decreases, Increases
d)
Variable, Decreases, Decreases
8.
8. Which of the following is true about fixed and adjustable-rate mortgages?
a)
Fixed-rate mortgages have a constant payment every month, but an interest rate that increases throughout the term of the loan
b)
Fixed-rate mortgages have a fixed interest rate for a few years, after which time the interest rate fluctuates according to general market conditions
c)
Adjustable-rate mortgages have a fixed interest rate for a few years, after which time the interest rate fluctuates according to general market conditions
d)
The two mortgages work the same way but are called different names depending if they come from a bank or a credit union
9.
9. Which of these credit payback strategies would lead to the HIGHEST overall cost?
a)
Paying off your credit card bill in full every month
b)
Paying 20% of your credit card balance every month on time
c)
Making the minimum payment (3% of your credit card balance) every month on time
d)
Making the minimum payment (3% of your credit card balance) every month with an occasional late payment
10.
10. Denise took out a payday loan for $300 in August. By February of the next year, she was able to pay back the loan, but she had spent a total of $750 doing so. What’s the most likely story of how this happened?
a)
The minimum monthly payment for payday loans is usually only $10 or $15, so a lot of interested accumulated
b)
Upfront, Denise knew there would be $450 of fees attached to the loan, but she took out the loan anyway
c)
Payday loans must be paid in full within two weeks, and if not, the only option is to renew the loan for a high penalty fee, which she did approximately 12 times
d)
Denise not only paid the $300 she owed, but she prepaid an extra $450 in case she needs another loan in upcoming months
11.
11. 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?
a)
Put in $0 for your down payment, and choose a loan with a short term length
b)
Put in $2500 for your down payment, and choose a loan with a short term length
c)
Put in $3500 for your down payment, and choose a loan with a long term length
d)
Put in $5000 for your down payment, and choose a loan with a long term length
12.
12. Reading through a credit card’s Schumer Box, you see the APR for a specific card is set at 9.99% - 23.99%. Which statement is true?
a)
When given a range of APRs like this, you can assume most cardholders pay the lowest rate listed
b)
Your APR will be within that range, depending on the strength of your credit history
c)
In this case, you want the highest APR in the range because you’ll earn more
d)
The APR on credit cards is usually fixed, so it won't be adjusted as long as you are a cardholder
13.
13. What is an advantage of using a credit card?
a)
It will not affect your credit score or credit history
b)
Since it is tied directly to your checking account, it prevents you from spending money you do not have
c)
If you need to carry a balance, the interest rates are generally quite low (less than 5%)
d)
You can make an emergency purchase that you otherwise don’t have the money to pay for right now
14.
14. Credit card disclosure: "Your due date is at least 25 days after the end of the billing cycle. We will not charge you interest on new purchases provided that you have paid your previous balance in full by the due date each month." Identify the true statement.
a)
If you make the minimum payment on your card within the 25 day period, the credit card company will not charge you interest
b)
If you pay your previous balance in full after the due date, the credit card company will not charge you interest
c)
25 days is an exceptionally long period without paying a credit card bill
d)
The 25 days after the end of the billing cycle is referred to as the grace period
15.
15. A loan with a shorter term length will have __________ monthly payments, and you will pay __________ in total interest.
a)
higher, less
b)
higher, more
c)
lower, less
d)
lower, more
16.
16. Select the statement below that accurately describes a characteristic of a credit card.
a)
You owe the same payment every month
b)
You must have money deposited into a checking account to use the credit card for purchases
c)
Making full payments on-time every month is the only way to avoid interest charges
d)
They do not charge interest
17.
17. Which of the following statements is CORRECT about secured loans?
a)
They are a good choice to use for student loans
b)
If the borrower does not make payments, the lender can repossess the item
c)
In the event of default, the borrower loses nothing except for the down payment
d)
They usually have higher interest rates as compared with unsecured loans
18.
18. An excellent credit score will help with which aspect of car financing?
a)
Bargaining for a great sales price
b)
Receiving a large down payment
c)
Qualifying for a low interest rate
d)
Having a wide selection of term lengths
19.
19. As a young adult, all of the following are good strategies for building credit, EXCEPT:
a)
Open a credit card, with your parent or guardian as a cosigner
b)
Take out a payday loan
c)
Become an authorized user on a credit card used by your parent or guardian
d)
Open and use a secured credit card
20.
20. Amy and Chuck each buy a house in the same neighborhood for $250,000. Amy's monthly mortgage payment is $400 more per month than Chuck's. Which one of the following statements could explain this difference?
a)
Amy chose a shorter term for her mortgage, so her monthly payments are higher
b)
Amy made a larger down payment, so her monthly payments are also larger
c)
Chuck chose a shorter term for his mortgage, so his monthly payments are also lower
d)
Chuck has a lower credit score, so his interest payments are also lower
21.
21. Why are payday loans so much easier to qualify for than traditional bank loans?
a)
Payday loans are only used by affluent households, and the banks know they have enough money to cover them
b)
Payday loans are just another word for direct deposit, and almost all employers offer their employees direct deposit instead of a paper paycheck
c)
Payday loans require proof of employment or other regular income but not a credit check
d)
Payday loans are typically for such small dollar amounts that no one cares if you repay them or not
22.
22. Trudy tells her mom that she wants to buy a house within two years of graduating from college. Her mom says Trudy will need a down payment first. What is a down payment?
a)
A large sum of money you pay when taking out a mortgage so that the principal of your loan is smaller
b)
A specific type of tax advantaged bank account used for saving money to buy a house
c)
The first year’s worth of property taxes, held in reserve
d)
A prepayment to a real estate agent so that they will start helping you house hunt
23.
23. Duc has a credit card with a $1000 credit limit. His outstanding balance is currently $800. What is the maximum amount he can now spend on this credit card?
a)
$200
b)
$800
c)
$1000
d)
$1800
24.
24. Which of the following statements is true about this Schumer Box?
a)
Depending on your creditworthiness, the APR for a borrower will always either be 8.99%, 10.99% or 12.99%
b)
There is an introductory APR that is valid only for 1 year, but then the permanent APR is lower than that at 8.99%.
c)
You will never be charged an APR higher than 14.99%
d)
A 28.99% APR may be applied to your account for late payment
25.
25. Why would credit card companies prefer that their cardholders make the minimum monthly payment every month rather than paying their total balance in full?
a)
This is required by federal law for tax purposes
b)
This allows the card holder to pay their bill quickly and close the card when they’re ready
c)
This enables the credit card company to make more money
d)
This helps cardholders develop financial independence
26.

A person-to-person payment app could be used in each of the following scenarios EXCEPT:

a)

Tina pays her neighbor $200 for breaking his window with a softball

b)

Rafael writes a check to cover the entire month’s rent, and his roommates Valerie and Carlos pay Rafael for their share of the monthly rent

c)

Ahmed's soccer coach pays the team's registration fee for a big tournament, and each player then owes him $35 for their share of the registration fee

d)

Mia pays Cheesy Pizza Co. for a pizza she orders on their website

27.

Which financial product typically pays the highest rate of interest?

a)

Savings account

b)

Money market account

c)

Certificate of deposit

d)

Common stock

28.

If a person makes a deposit of $10,000 or more into a bank account, the bank must notify the:

a)

US Treasury Department

b)

Federal Deposit Insurance Corporation (FDIC)

c)

State Banking Commission

d)

Federal Reserve Board

29.

A well stated financial goal is:

a)

Realistic with a target date

b)

Related to one's age group

c)

A map of steps to be taken in the future

d)

Logical and specific

30.

What does a well designed, successful financial plan include?

a)

Wants and needs

b)

Unexpected income

c)

Retirement planning

d)

Bank statements

31.

Danisha does all her grocery shopping at organic markets and has a monthly grocery bill of $325. Charles says that Danaisha is wasting her money on wants instead of focusing on needs. He buys in bulk, uses coupons, and shops at Save-More for a monthly bill of $195. Who's budgeting correctly for food?

a)

Danaisha, because she is focusing on her health, which will have a guaranteed payoff in the long run

b)

Charles, because he's taking efforts to save money by focusing on his needs only

c)

Both, because needs vs wants are determined on an individual basis

d)

Neither, because they should meet in the middle somewhere. Charles should focus more on health, and Danaisha should cut her spending.

32.

You are interested in renting an apartment after graduating college. You meet with the landlord and complete the application. All of the following my need to be provided when you sign your lease EXCEPT:

a)

Proof of employment

b)

A bank account

c)

First and last month's rent

d)

A security deposit

33.

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

a)

Only consumers with high scores are approved for credit

b)

Consumers with low scores get lower interest rates on loans than those with high scores

c)

Your credit score can determine whether you are approved for a loan and what the interest rate on that loan will be

d)

It generally has no impact on your financial situation

34.

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

a)

AnnualCreditReport.com

b)

Credit Karma

c)

Credit Wise

d)

Wallet Hub

35.

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

a)

Your credit score

b)

The amount of money you deposit into an account as collateral

c)

The total amount of money across all your bank accounts

d)

How long you’ve had an account with the bank

36.

Which response best completes the sentence "It's best to begin establishing credit when you're young because ________" ?

a)

Accessing credit only becomes more expensive as you get older

b)

Negative marks on your credit report go away faster for younger borrowers

c)

Credit scores are free for anyone under the age of 25

d)

You will likely need a credit history to rent your first apartment, finance your first car, or open an unsecured credit card

37.

You're paying your credit card bill and your student loan payment each month, but you're falling behind on your auto loan payment. Which friend's advice could have a NEGATIVE impact on your credit score?

a)

Joanie says, "Call the auto lender and see if you can negotiate a lower monthly payment or some other deal."

b)

Debbie says, "Stop making the credit card payment for a few months until you're caught up on the auto loan."

c)

Angie says, "Pick up a second job for as long as it takes to accumulate enough money to make all your payments, even if it means losing time with friends and family."

d)

Betty says, "Cut down to a bare bones budget, where your necessities and your debt repayments take first priority. Cut everything non-essential."

38.

Which of these represents a potential consequence of neglecting to pay your federal student loans?

a)

Wages or tax refunds can be garnished

b)

Passport revocation

c)

Driver's license suspension

d)

Termination from your job

39.

Which of the following could have a NEGATIVE impact on your credit score if done in a short period of time?

a)

Paying your bills on-time

b)

Paying down balances on your credit card accounts

c)

Decreasing your utilization of credit

d)

Applying for multiple credit cards

40.

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?

a)

Contact the credit card company to have them fix it

b)

Contact the credit reporting agency

c)

Wait a few weeks to see if it gets resolved

d)

Call the police to report the possible identity theft

41.

Who tracks all of your credit information?

a)

Credit reporting agencies (Equifax, Experian and TransUnion)

b)

Federal government

c)

Consumer Financial Protection Board (CFPB)

d)

Lenders

42.

Melvin is 19 years old and wants to begin establishing a credit history. Which action should he take to meet that goal?

a)

Always say "credit" when asked "credit or debit?" at a store

b)

Ask his parents to cosign a credit card or add him as an authorized user on their credit card

c)

Any time he borrows money from a friend or family member, be sure to pay it back promptly

d)

Take out some private student loans, even though he doesn't need them because he has grants and scholarships

43.

Your friend confides in you that he has a low credit score. What is the single best way for him to improve his score?

a)

Cancel his credit cards

b)

Make on-time payments

c)

Get a car loan

d)

Check his credit score

44.

All of the following would show up on a credit report EXCEPT...

a)

Salary of your current job

b)

Payment history of your car loan

c)

Credit card payment history

d)

Student loan activity

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