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WorksheetsUnit 6 Credit Review
Total questions: 62
Worksheet time: 39mins
Which three factors are needed to calculate the cost of using credit?
Principal, interest rate, and time
Credit score, loan officer, and payment method
Monthly income, expenses, and savings
Bank location, account type, and withdrawal amount
Which of the following best compares installment, revolving, and service credit?
Installment credit is paid in fixed amounts, revolving credit allows repeated borrowing up to a limit, and service credit is for utilities or services used and paid for later.
Installment credit is only for businesses, revolving credit is only for students, and service credit is only for government employees.
Installment credit has no interest, revolving credit has no limit, and service credit is always free.
Installment credit is paid all at once, revolving credit is never paid back, and service credit is paid before use.
Give an example of each type of credit: installment, revolving, and service.
Car loan (installment), credit card (revolving), electricity bill (service)
Grocery shopping (installment), movie ticket (revolving), restaurant bill (service)
Savings account (installment), checking account (revolving), cash withdrawal (service)
Lottery ticket (installment), gift card (revolving), prepaid phone (service)
Which of the following is a potential benefit of using credit?
Ability to make purchases now and pay later
Guaranteed increase in income
Elimination of all financial risks
Automatic approval for all loans
Why might someone consider using credit when planning for a large purchase, such as travel?
To spread out payments over time
To avoid ever paying for the purchase
To reduce the total cost to zero
To guarantee instant approval for any purchase
Which type of credit is specifically designed to help students pay for their education expenses?
Student Loans
Payday Loans
Mortgages
Credit Cards
Which type of credit is typically used to purchase a home?
Mortgages
Auto Loans
Charge Cards
Payday Loans
What does the term "Term" refer to in the context of credit?
The length of time before the money is repaid.
The amount of money borrowed.
The interest rate charged on a loan.
The credit score required for approval.
Which of the following best describes a borrower/debtor in the context of credit?
The individual or entity borrowing money.
The individual or entity providing the money.
The person who sets interest rates.
The organization that collects taxes.
What is one benefit that borrowers receive when they take out a loan?
Access to money now in exchange for repayment in the future.
Earning interest on the money they lend.
Avoiding all fees and interest.
Receiving free financial advice.
Which of the following is a cost that can be included when borrowing money?
Interest and fees
Free gifts
Tax refunds
Insurance premiums
Who is considered a lender/creditor in a credit transaction?
The individual or entity providing the money.
The person borrowing the money.
The government official.
The bank customer.
How do credit lenders make money when they provide loans?
By charging fees and interest.
By giving away free money.
By selling products.
By collecting taxes.
If a lender charges interest, what does this mean for the borrower?
The borrower must pay back more than they borrowed.
The borrower receives extra money.
The borrower pays less than they borrowed.
The borrower does not have to repay the loan.
Suppose you borrow $1,000 from a lender who charges an APR 5% interest. How much interest will you owe for the whole year?
$50
$500
$5
$100
Which of the following best defines a credit score?
A three-digit number that represents your creditworthiness.
The total amount of money you owe on a credit card.
The interest rate charged on a loan.
The annual fee paid for using a credit card.
What does APR (Annual Percentage Rate) refer to in credit terms?
The annualized cost of borrowing, including interest and fees.
The initial amount of money borrowed.
The length of time to repay a loan.
The fixed interest rate on a loan.
Which term describes a fee that must be paid each year to have certain credit cards?
Annual fee
Principal
Term
Grace period
What is the principal in a loan agreement?
The initial amount of money borrowed.
The interest rate charged on the loan.
The annual fee for the loan.
The total cost of borrowing including fees.
A fixed rate and interest means:
An interest rate that remains the same throughout the loan term.
An interest rate that changes over time.
A fee paid annually for a credit card.
The total amount borrowed.
What is a grace period in the context of credit cards?
A length of time when you may not be charged interest on credit card purchases.
The time required to repay the loan.
The initial amount borrowed.
The annual fee for using the card.
Which term refers to an interest rate that can change over time?
Variable rate and interest
Fixed rate and interest
Principal
Annual fee
In credit terms, what does "term" refer to?
The length of time within which the loan is to be repaid.
The annual fee for the loan.
The initial amount borrowed.
The interest rate charged on the loan.
If you are comparing two loans, one with a fixed rate and one with a variable rate, which loan's interest payments are more predictable over time?
The loan with a fixed rate and interest
The loan with a variable rate and interest
The loan with a higher principal
The loan with a longer term
A borrower is offered a credit card with no annual fee but a high APR. What should the borrower consider most when deciding whether to accept the card?
The cost of borrowing due to the high APR
The absence of an annual fee
The length of the loan term
The initial principal amount
Which type of credit has a limit but no timeline for when the money needs to be paid back?
Revolving Credit
Installment Credit
Secured Credit
Unsecured Credit
What is a key characteristic of revolving credit?
It has a fixed repayment schedule.
It has a limit but no set timeline for repayment.
It requires collateral.
It is only used for mortgages.
Why might someone choose revolving credit over other types of credit?
Because it allows flexible repayment without a fixed schedule.
Because it always has lower interest rates.
Because it requires no credit check.
Because it is only available for business loans.
Which of the following is an example of fixed installment credit?
Credit cards
Utility bills
Auto loans
Charge cards
What is a key feature of revolving credit?
Requires full payment by a specified period
Repayment in fixed installments over time
Accessing funds up to a credit limit and making monthly payments based on the outstanding balance
No interest if paid in full on time
Which cost is commonly associated with fixed installment credit?
Annual fees
Origination fees
Penalty fees for exceeding the credit limit
No interest if paid in full on time
If a person pays their utility bill in full and on time, what is the financial benefit?
They avoid annual fees
They avoid interest charges
They increase their credit limit
They receive origination fees
Compare the consequences of late payments for revolving credit and open/service credit. How do they differ in terms of penalties and effects on credit scores?
Both have no penalties for late payments
Revolving credit has only interest charges, while open/service credit has only penalties
Revolving credit may have penalty fees for late payments or exceeding the credit limit, while open/service credit late payments can lead to penalties and negative effects on credit scores
Only open/service credit affects credit scores
A student is considering different types of credit for their first purchase. If they want to borrow a specific amount and repay it in fixed installments, which type of credit should they choose?
Revolving credit
Open/service credit
Fixed installment credit
Charge card
What does a diverse credit mix refer to?
Having different types of credit accounts.
Having only one type of credit account.
Having no credit accounts at all.
Having credit accounts with high balances.
How can having a credit mix improve a borrower's credit profile?
By showing lenders the borrower can handle various types of credit responsibly.
By increasing the amount of money borrowed.
By reducing the number of credit accounts.
By closing old credit accounts.
Why does a diverse credit mix make an individual more attractive to banks and lenders in the future?
Because they are seen as a lower-risk borrower with a proven track record of managing different credit obligations effectively.
Because they have the highest amount of debt.
Because they only use one type of credit.
Because they avoid using credit altogether.
Why is it important to recognize the different types of credit and the costs involved with each?
To make informed financial decisions
To avoid learning about money
To increase spending without limits
To ignore financial responsibilities
Suppose you are given several credit options. What should you consider before choosing one?
The types of credit and the costs involved
The color of the credit card
The popularity of the credit provider
The design of the credit statement
Which of the following is something an individual should know about credit?
Credit can affect your ability to get loans.
Credit is only used for buying groceries.
Credit is not related to financial decisions.
Credit is the same as cash.
Why is it important for an individual to understand their credit score?
It helps determine eligibility for loans and interest rates.
It is only used for entertainment purposes.
It does not impact any financial decisions.
It is not recorded anywhere.
Which of the following actions can negatively impact your credit?
Missing payments on a credit card.
Paying bills on time.
Checking your credit report.
Saving money in a bank account.
Cost of Credit expressed as a yearly percentage
APY
APR
Principal
Mortgage
A person who has a good personal credit record is generally charged a lower interest rate when he applies for a loan.
True
False
What is the monthly interest rate if the annual interest rate is 7%
0.005
0.07
0.00583
0.5833
What is the monthly interest rate if the annual interest rate is 8.9%
0.7416
0.00741
.07416
106.8
If you do not pay your entire credit card bill each month, you will have to pay _____.
Interest
Taxes
A fee
A debt
Which of the following is not one of the three credit bureaus
Equifax
Better Credit Bureau
TransUnion
Experian
Credit cards can help _____________ when paid off on time regularly.
build credit history
act as a form of identification
lower your debt
balance your checking account
What is the APR (interest rate) on this card for Purchases made during the first six months that a cardholder has this card?
0%
15.24%
23.24%
25.24%
Jordan gets confused and uses his credit card to get $40 in cash from an ATM instead of using his debit card. Based on this agreement, what is the impact of this decision?
There is no impact since credit card and debit card terms tend to be the same.
A $10 cash advance fee will be charged ONLY.
An A.P.R. of 25.24% will be applied on the $40 until it is paid back ONLY.
A $10 cash advance fee will be charged AND an A.P.R. of 25.24% will be applied on the $40 until it is paid back.
Assume that Louisa carried an average balance of $1,000 from her credit card purchases over the past year. The A.P.R. on her credit card for the past year was 19.99%. Approximately how much interest would Louisa have paid over the course of the year?
She would have paid interest charges of $2,000.
She would have paid interest charges of $20.
The credit card company would have paid Louisa $20.
She would have paid interest charges of $200.
After the introductory period, all consumers who have this Platinum Card will...
Pay the same A.P.R.
Qualify for an A.P.R. based on their creditworthiness
Pay the Penalty A.P.R. of 30.24%
Be charged an Annual Fee
As you will see from this agreement, there are different A.P.R.s applied based on how the credit card is used. Which transaction type has the highest A.P.R.?
A.P.R. triggered by a late payment
A.P.R. applied on Purchases made during the Introductory Period
A.P.R. applied to a Balance Transfer
A.P.R. applied to a Cash Advance
Devon forgets to pay his credit card bill for three months. Which of the following statements is TRUE?
A Late Payment fee will not be charged to his account.
A Balance Transfer fee will be charged to his account.
His A.P.R. (interest rate) will rise to 30.24% until he pays back the amount he owes.
His A.P.R. (interest rate) will rise to 30.24% and stay there until he makes six consecutive minimum payments.
Tamara goes on a spring break trip with her school to visit historical sites in Italy. She purchases $200 of souvenirs while on the trip. She gets back to the U.S. and opens her credit card statement. What will be the balance in her account, assuming she had a zero balance prior to making these purchases and didn't make any other purchases?
$0.00
$200.00
$206.00
$6.00
All of the following actions lead to the payment of a credit card fee EXCEPT...
Using your credit card to get cash from an ATM.
Using your credit card to purchase items in a foreign country.
Paying your credit card bill ten days after the Due Date.
Paying your credit card bill in full and on time every month.
Josephine decided to get this Platinum card since she saw the ads touting the "0% A.P.R. Platinum. Sign Up Now." After reading this agreement, which of the following statements is TRUE?
Her A.P.R will change after six months and be between 15.24% to 23.24% assuming that she has been making on-time payments during those first six months.
She will not pay interest on any of the purchases she makes on this credit card for the first year.
All her purchases on this credit card are FREE for the first six months.
All her purchases on this card are FREE.
Which of the following statements is TRUE?
Assume that Josie has had this credit card for a year. The A.P.R. on her card will remain the same as long as she has the card.
If Josie misses a payment during the Introductory Period, her late payment fee will be waived for this period since she is a new customer.
Assume that Josie only uses her credit card to make purchases. She pays the balance on her credit card in full and on time every month. As a result, she pays no interest to the credit card company.
Josie pays an annual fee to use this credit card.
Which of the following best describes a credit limit?
The maximum amount a borrower can spend using a credit account.
The minimum payment required each month.
The number of credit cards a person can have.
The total interest paid over the life of a loan.
