WorksheetsWhat is Credit and Why Do I Need It?
Total questions: 30
Worksheet time: 16mins
“Purchasing Power” is an advantage of using credit because it allows you to:
Buy goods and services now and pay later
Earn more interest on savings
Avoid paying any interest
Increase your income automatically
A danger of overspending is:
Going into debt
Saving more money
Improving your credit score
Increasing your wealth
Interest and fees are a disadvantage because:
They increase the total cost of borrowing.
They make saving money easier.
They reduce the amount you owe.
They provide extra rewards.
The biggest advantage of credit is:
It allows you to purchase goods or services now and pay later.
It always increases your income instantly.
It eliminates the need for budgeting.
It guarantees you will never have debt.
What are three disadvantages of credit?
1. Interest charges 2. Risk of overspending 3. Debt accumulation
1. No interest charges 2. Guaranteed savings 3. No risk of debt
1. Increases income 2. Reduces expenses 3. Improves credit score instantly
1. No need to repay 2. Unlimited credit 3. No financial responsibility
The difference between a credit report and a credit score is:
A credit report is a detailed record of your credit history, while a credit score is a numerical summary of your creditworthiness.
A credit report is your bank statement, while a credit score is your income level.
A credit report is your employment history, while a credit score is your age.
A credit report is a list of your assets, while a credit score is your debt amount.
You should look for (a) on your credit reports?
The three credit agencies are important, and you need a report from each one because:
They may have different information, and checking all three ensures accuracy.
They all have the same information, so one report is enough.
Only one agency is recognized by lenders.
You only need a report if you have bad credit.
What are the four sections of a credit report?
The four sections of a credit report are: Your personal information, Credit accounts, Credit inquiries, and Public records.
The four sections of a credit report are: Your personal information, Employment history, Loan applications, and Tax returns.
The four sections of a credit report are: Your personal information, Bank statements, Investment accounts, and Insurance policies.
The four sections of a credit report are: Your personal information, Payment receipts, Utility bills, and Rental agreements.
A credit score indicates creditworthiness by:
showing how likely a person is to repay borrowed money
displaying a person's total income
listing all previous employers
measuring the number of credit cards owned
A person might have three different credit scores because:
the three major credit bureaus may have different information about the person
credit scores are updated every month
everyone has three credit cards
credit scores are the same for everyone
Lenders use credit scores to:
Determine the likelihood that a borrower will repay a loan.
Set the legal interest rate for all loans.
Decide the type of collateral required for every loan.
Calculate the total amount of money in circulation.
A person’s credit score can affect different aspects of his/her life in which of the following ways?
It can impact the ability to get loans, rent apartments, and secure jobs.
It only affects the ability to buy groceries.
It determines a person's favorite color.
It has no effect on any financial decisions.
A poor credit score can have which of the following impacts on a person’s financial life?
It can make it harder to get loans or credit cards.
It guarantees lower interest rates on loans.
It increases the chances of winning a lottery.
It ensures automatic approval for all financial applications.
A poor credit score can hurt your financial success by:
Making it harder to get approved for loans or credit cards.
Increasing your chances of winning a lottery.
Guaranteeing you get lower interest rates on loans.
Allowing you to buy anything without paying.
Which of the following lists three responsible actions a person can take to improve their credit score?
Pay bills on time, reduce credit card balances, check credit reports for errors
Ignore credit card statements, apply for multiple loans, miss payments
Max out credit cards, avoid checking credit reports, pay bills late
Close old credit accounts, make only minimum payments, skip bill payments
Service credit refers to the recognition of time worked or service provided, often used to determine benefits. Which of the following is an example of service credit?
Time spent working for a company that counts toward retirement benefits
Taking a vacation during employment
Attending a company picnic
Receiving a bonus for good performance
Closed-end credit is a type of credit that is used for a specific purpose and amount, and is repaid in fixed payments. Which of the following is an example of how people use closed-end credit?
Taking out a car loan to purchase a vehicle
Using a credit card for daily expenses
Opening a revolving line of credit
Paying monthly utility bills
The main difference between open-end and closed-end credit accounts is:
Open-end credit allows repeated borrowing up to a limit, while closed-end credit is for a fixed amount repaid over time.
Closed-end credit allows repeated borrowing up to a limit, while open-end credit is for a fixed amount repaid over time.
Both open-end and closed-end credit accounts allow unlimited borrowing with no repayment schedule.
Open-end credit is only available for mortgages, while closed-end credit is only for credit cards.
Which of the following correctly lists two characteristics for each section of a Venn Diagram comparing credit cards and debit cards?
Credit Card: Can build credit history, allows borrowing money; Both: Used for purchases, require a card number; Debit Card: Directly linked to bank account, spends existing funds
Credit Card: Directly linked to bank account, spends existing funds; Both: Used for purchases, require a card number; Debit Card: Can build credit history, allows borrowing money
Credit Card: Used for purchases, requires PIN; Both: Can withdraw cash, have interest rates; Debit Card: Allows borrowing money, builds credit history
Credit Card: Requires PIN, spends existing funds; Both: Can build credit history, allows borrowing money; Debit Card: Used for purchases, require a card number
Some advantages of credit cards are:
Convenient payment and rewards programs
Require only cash for purchases
No spending limits at all
Do not affect credit score
Some disadvantages of credit cards include:
High interest rates
Guaranteed savings
No spending limits
Immediate debt forgiveness
Which term represents interest and all other fees added on to credit purchases?
annual fee
annual percentage rate
introductory rate
finance charges
What fee will you pay if you go over your credit limit?
minimum payment fee
over-the-limit fee
introductory rate
grace period fee
The highest amount that can be charged to your credit account is called?
credit limit
free period limit
minimum payment limit
APR limit
What is the annual interest rate you’ll be charged if you carry a balance?
introductory rate
over-the-limit rate
credit agency rate
annual percentage rate
Introductory rates are also known as what?
minimum payments
teaser rates
annual percentage rates
annual fee rates
The least amount of money required to be paid each month is called what?
grace period payment fee
credit score fee
minimum payment
maximum payment
Revolving credit allows you to borrow up to a certain limit and pay back over time, such as with a credit card, while non-revolving credit is a one-time loan for a specific amount, like a car loan. Which of the following best describes the difference between revolving and non-revolving credit, along with an example of each?
Revolving credit lets you borrow repeatedly up to a limit (e.g., credit card), while non-revolving credit is a one-time loan for a set amount (e.g., car loan).
Revolving credit is only for mortgages, while non-revolving credit is only for student loans.
Revolving credit requires full payment each month, while non-revolving credit does not.
Revolving credit is always interest-free, while non-revolving credit always has high interest.
A “teaser rate” is used by credit card companies for which of the following reasons?
To attract new customers by offering a temporarily low interest rate
To permanently lower the interest rate for all customers
To increase the annual fees on credit cards
To discourage people from applying for credit cards
