WorksheetsChapter 4 Test
Total questions: 56
Worksheet time: 34mins
Something that credit card commercials don’t show you is . . .
People making payments for months or years on those credit card purchases
How much your credit score will grow right away
How happy your parents will be that they don’t have to lend you cash anymore
How great your life will be with payments
When a homeowner takes out a home equity line of credit (HELOC), that loan can only be used for home repairs and renovations.
True
False
Banks and lenders use credit scores to determine . . .
The likelihood that someone is able to repay debt
A person’s financial responsibility
How much collateral someone has available to put up for a loan
How successful someone is
Making purchases with a credit card means that you’re borrowing money with interest, and (a) pay much higher interest rates.
Young people
Rich people
Old people
College graduates
When you finance a new car, you will end up paying more than the sticker price.
True
False
While it may not always appear so, the majority of Americans live paycheck to paycheck.
True
False
Your greatest tool to building wealth is____________ .
Tax cuts
Your income
Your credit score
(a) require the borrower to put up collateral for the loan.
Unsecured loans
Interest rates
Revolving credit
Secured loans
Which of the following is part of the formula that determines a person's FICO score?
Their income level during a one year period
The percent of income that they invest into mutual funds
The dollar amount in their savings funds
Their history of payments made to lenders
There are certain things, like renting a car or booking a hotel room, that you cannot do without having a credit card.
True
False
Leasing a car is a method of financing where someone (a) .
Is paying off two or more vehicles at one time
Does not have to pay any taxes on the vehicle for the first six months
Never pays any interest or fees
What is The Second Foundation?
Get out and stay out of debt
Save a $500 emergency fund.
Pay cash for your car.
Build wealth and give.
Credit card companies make the most profit from (a) .
Incentive programs with banks
Partnering with companies to offer rewards to customers
Government tax breaks
Charging interest to customers who only pay part of their monthly debt
Which is an example of an appreciating asset?
A. A computer used for business purposes
B. A new car purchased within the past 6 months
C. A piece of farming equipment
D. A home
Once you turn 18, you should regularly check your credit report . . .
For errors or signs of identity fraud
To make a plan for improving your credit score
To keep an eye on your credit score
Only if you have a credit card
Credit cards that offer flashy rewards like airline miles often . . .
Charge a high annual fee
Don't include protection against fraud
Can't be used for personal expenses
Have no interest fees
Car lease agreements come with a stipulation that you must pay a penalty if you (a) .
Go over the pre-established mileage cap
Drive the car out of state
Don’t park under a garage
Don’t wash the car before returning it
The debt snowball method involves . . .
Waiting until the winter months to begin paying off debt
Paying off debts from largest to smallest
Pooling together money from other people to pay off your debt
Paying off debts from smallest to largest
Loans that directly help you advance in life, such as student loans, are acceptable debts.
True
False
Predatory lenders get their negative reputation from . . .
Limiting the amount of time a borrower has to use a loan
Taking advantage of people during the Great Depression
Charging high fees for loans and targeting desperate people
Discreetly selling personal bank information
A credit score is an indicator of how well someone pays off their debt, not how well they handle money.
True
False
When you buy with credit, you typically spend more than you would with cash or a debit card.
True
False
The smartest way to buy a car is to_______ .
Finance it but pay the debt as quickly as you can
Take out a personal loan for it
What is the best way to avoid falling into debt?
Use credit to pay for large expenses now so that you have plenty of time to pay it off.
Only buy things that you can purchase with cash.
Use airline miles earned through a credit card to help pay for a vacation.
Take out a small loan for any purchases over $1,000.
Credit isn't a wealth-building tool, it's a business that makes money for . . .
Individuals who use credit cards
Stock market investors, tax agencies, and financial advisors
Local businesses and homebuilders
Credit card companies, banks, and lenders
A car is a depreciating asset.
True
False
When looking over your credit report, it’s important to make sure . . .
No lines of credit have been opened under your name without your knowledge
Your credit score is over 700
At least five businesses have requested your credit report
The information listed is over 10 years old
Credit card companies charge stores a 2–3% fee for every purchase made with credit cards. This is called a(n) (a) .
Merchant fee
Cash advance fee
Annual fee
Over-the-limit fee
The (a) is the total amount of the car loan, plus taxes and fees.
Principal
Value
Interest
Term
How you spend and give your money . . .
Can’t be changed, even if you try
Is the most important thing in life
Is a reflection of your personal values
Doesn’t matter until you’re in your 40s
Debt and credit can negatively affect your life because:
They can lead to financial instability.
They always improve your credit score.
They guarantee financial success.
They have no impact on your financial health.
What is the danger of putting up collateral for a loan?
Loss of the collateral if the loan is not repaid
Increase in loan interest rates
Improvement in credit score
Reduction in loan amount
Which of the following is a way the credit card industry makes money off of customers?
Interest charges on unpaid balances
Annual fees for card membership
Late payment penalties
Cashback rewards
What is the difference between an appreciating asset and a depreciating asset? Give examples of both.
An appreciating asset increases in value over time, such as real estate, while a depreciating asset decreases in value, like a car.
An appreciating asset decreases in value over time, such as a car, while a depreciating asset increases in value, like real estate.
Both appreciating and depreciating assets increase in value over time.
Both appreciating and depreciating assets decrease in value over time.
Which of the following is a marketing tactic that the credit industry uses to trick people into getting into debt?
Offering low introductory interest rates
Providing clear and transparent terms
Encouraging financial literacy
Promoting debt-free living
The Debt Snowball Method is a strategy for paying off debt. How can it help you get out of debt?
By focusing on paying off the largest debts first
By consolidating all debts into one payment
By paying off the smallest debts first to build momentum
By negotiating lower interest rates on all debts
Match the following terms with their definitions related to credit and finance.
The maximum amount of credit a borrower can use
Credit Limit
A yearly charge for credit card usage
Annual Fee
A measurement of someone's creditworthiness
Credit Score
An initial cash payment for a large purchase
Down Payment
Are you excited about graduation?
Yes
No
Which of the following actions can help improve your credit score over time?
Making all loan and credit card payments on time
Applying for multiple new credit cards at once
Maxing out your credit cards each month
Closing your oldest credit account
What is a potential consequence of only making the minimum payment on your credit card each month?
Your credit score will automatically increase
You will pay more in interest over time
You will avoid all fees and charges
Your balance will be paid off quickly
Which of the following is considered a depreciating asset?
A new car
A rare painting
Stocks in a successful company
Land in a growing city
Match the following terms with their correct descriptions.
Cosigner
Person who agrees to pay another person's debt if they default
Creditor
Person or institution to whom money is owed
Debtor
Person or entity that owes money
Broker
Person who arranges transactions between a buyer and a seller
How does your credit score impact the personal loan options you have available?
A lower credit score correlates to a better interest rate and a larger available loan size.
A higher credit score correlates to a poor interest rate and a larger available loan size.
A higher credit score correlates to a better interest rate and a larger available loan size.
A lower credit score correlates to a poor interest rate and a larger available loan size.
A variable interest rate will remain the same over the entire loan
True
False
A fixed interest rate will vary over the life of the loan
True
False
A very good credit rating would be
1000
800
600
400
What is debt?
Another word for death
Something, typically money, that is owed or due
A loan on which you do not have to pay interest
That which is incurred during childhood and consummated in college
What is a credit score?
a number between 300 and 850 representing your creditworthiness
a statistical number that evaluates a consumer's creditworthiness and is based on credit history.
Often referred to as a FICO score
All of the above
What is the measure of the cost of credit; expressed as a yearly rate?
Annual Percentage Rate
Credit
FICO Scores
Revolving Credit
What is an interest rate?
it is your level of interest about a certain topic expressed as a percentage of your total interest
The amount in terms of dollars that you have to pay back on a purchase
it is the rate at which your interest in something expires. The higher the number, the quicker your interest expires
The amount in terms of a rate or percentage that you have to pay back on an amount borrowed
