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WorksheetsCredit Unit Study Guide
Total questions: 46
Worksheet time: 23mins
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
The average APR for a payday loan is closest to ...
4%
14%
40%
400%
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
Which of the following is most likely to represent a fixed rate, secured debt?
A student loan
A credit card
A prepaid debit card
An auto loan
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?
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
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
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.
Constant, Increases, Increases
Constant, Decreases, Increases
Variable, Decreases, Increases
Variable, Decreases, Decreases
Which of the following is true about fixed and adjustable-rate mortgages?
Fixed-rate mortgages have a constant payment every month, but an interest rate that increases throughout the term of the loan
Fixed-rate mortgages have a fixed interest rate for a few years, after which time the interest rate fluctuates according to general market conditions
Adjustable-rate mortgages have a fixed interest rate for a few years, after which time the interest rate fluctuates according to general market conditions
The two mortgages work the same way but are called different names depending if they come from a bank or a credit union
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
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?
The minimum monthly payment for payday loans is usually only $10 or $15, so a lot of interest accumulated
Upfront, Denise knew there would be $450 of fees attached to the loan, but she took out the loan anyway
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
Denise not only paid the $300 she owed, but she prepaid an extra $450 in case she needs another loan in upcoming months
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 $2250 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
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?
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
In this case, you want the highest APR in the range because you’ll 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%)
You can make an emergency purchase that you otherwise don’t have the money to pay for right now
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.
If you make the minimum payment on your card within the 25 day period, the credit card company will not charge you interest
If you pay your previous balance in full after the due date, the credit card company will not charge you interest
25 days is an exceptionally long period without paying a credit card bill
The 25 days after the end of the billing cycle is referred to as the grace period
A loan with a shorter term length will have __________ monthly payments, and you will pay __________ in total interest.
higher, more
lower, less
lower, more
Select the statement below that accurately describes a characteristic of a credit card.
You owe the same payment every month
You must have money deposited into a checking account to use the credit card for purchases
Making full payments on-time every month is the only way to avoid interest charges
They do not charge interest
Which of the following statements is CORRECT about secured loans?
They are a good choice to use for student loans
If the borrower does not make payments, the lender can repossess the item
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
An excellent credit score will help with which aspect of car financing?
Bargaining for a great sales price
Receiving a large down payment
Qualifying for a low interest rate
Having a wide selection of term lengths
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
Take out a payday loan
Become an authorized user on a credit card used by your parent or guardian
Open and use a secured credit card
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?
Amy chose a shorter term for her mortgage, so her monthly payments are higher
Amy made a larger down payment, so her monthly payments are also larger
Chuck chose a shorter term for his mortgage, so his monthly payments are also lower
Chuck has a lower credit score, so his interest payments are also lower
Why are payday loans so much easier to qualify for than traditional bank loans?
Payday loans are only used by affluent households, and the banks know they have enough money to cover them
Payday loans are just another word for direct deposit, and almost all employers offer their employees direct deposit instead of a paper paycheck
Payday loans require proof of employment or other regular income but not a credit check
Payday loans are typically for such small dollar amounts that no one cares if you repay them or not
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 large sum of money you pay when taking out a mortgage so that the principal of your loan is smaller
A specific type of tax advantaged bank account used for saving money to buy a house
The first year’s worth of property taxes, held in reserve
A prepayment to a real estate agent so that they will start helping you house hunt
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?
$200
$800
$1000
$1800
Why would credit card companies prefer that their cardholders make the minimum monthly payment every month rather than paying their total balance in full?
This is required by federal law for tax purposes
This allows the card holder to pay their bill quickly and close the card when they’re ready
This enables the credit card company to make more money
This helps cardholders develop financial independence
What are the two most important factors in calculating your credit score?
Payment history and types of accounts
Amounts owed and length of credit history
Payment history and total debt
Length of credit history and new credit inquiries
Heather realized she has taken out too much debt and it has started to negatively impact her ability to budget. She has decided to pay off this debt in full as soon as possible. All of the following would be beneficial strategies EXCEPT...
Reducing spending by canceling some of her streaming subscriptions
Taking extra shifts at work to increase her income
Making more than the minimum required payment on her debt
Applying for another credit card to use in case she runs out of cash paying off her debt
All of the following would show up on a credit report EXCEPT:
Salary of your current job
Payment history of your car loan
Credit card payment history
Student loan activity
Which of the following methods of getting your credit score would involve paying a fee?
Checking your credit card or loan statement
Talking to a non-profit counselor
Checking creditkarma.com
Getting a score from myFICO.com
Your friend confides in you that he has a low credit score. What is the single best way for him to improve his score?
Cancel his credit cards
Make on-time payments
Get a car loan
Check his credit score
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
Take money 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 of the following individuals or groups would be the LEAST likely to look at your credit score?
Someone interviewing you for a job
Credit card companies
An insurance company reviewing your applicant for auto insurance
A bank representative who is helping you open a savings account
You have a credit card that you use regularly for small purchases with the goal of improving your credit score. Which strategy would have the GREATEST positive impact?
Use less than 30% of the credit limit and pay it off in full every month by the due date
Always carry a balance from month to month
Regardless of how much your balance is, make the minimum payment required on your credit card every month by the due date
Put the credit card in a drawer and don't ever use it
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
Who tracks all of your credit information?
Credit reporting agencies (Equifax, Experian and TransUnion)
Federal government
Consumer Financial Protection Board (CFPB)
Lenders
What is the general timeline to establish your first credit score?
As soon as you apply for a credit card or loan
Six months after your first actively use your credit
Once you pay all of your credit balances in full
Once you turn 18
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
Which of the following things should you have ready when contacting a credit reporting agency to report an error on your credit report?
Your preferred payment method to pay for fixing the error
A list of all of your financial accounts and balances
An explanation of the mistake and any evidence you have supporting your claim
References from a non-family member vouching for your creditworthiness
Which of the following could have a NEGATIVE impact on your credit score if done in a short period of time?
Paying your bills on-time
Paying down balances on your credit card accounts
Decreasing your utilization of credit
Applying for multiple credit cards
Which best describes the Debt Snowball method for paying off debt?
Only make payments on your smallest debt first, then move on to your second smallest debt, and so on
Once your debt "snowballs" out of control, hire a certified credit counselor to help get your finances back on track
Make the monthly minimum payments on all your debts, and then put any extra cash toward the debt with the highest balance
Make the monthly minimum payments on all your debts, and then put any extra cash toward the debt with the lowest balance
Which of these represents a potential consequence of neglecting to pay your federal student loans?
Wages or tax refunds can be garnished
Passport revocation
Driver's license suspension
Termination from your job
What benefits do you receive by taking out a loan with a cosigner?
You don't get penalized for late payments
You get a discount on future loans after this one is paid off
You have a better change of getting approved and getting a lower interest rate if the cosigner has good credit
You automatically get the same credit score as the cosigner once the loan is paid off
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?
Call the auto lender and see if you can negotiate a lower monthly payment or some other deal.
Stop making the credit card payment for a few months until you're caught up on the auto loan.
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.
Cut down to a bare bones budget, where your necessities and your debt repayments take first priority. Cut everything non-essential.
Which response best completes the sentence "It's best to begin establishing credit when you're young because ________"?
Accessing credit only becomes more expensive as you get older
Negative marks on your credit report go away faster for younger borrowers
Credit scores are free for anyone under the age of 25
You will likely need a credit history to rent your first apartment, finance your first car, or open an unsecured credit card
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
Which free credit report service is authorized by federal law but only accessible once per year?
AnnualCreditReport.com
Credit Karma
Credit Wise
Wallet Hub
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
