Credit Basics
What is credit?
Getting something now and paying for it later.
Credit cards, store credit, buy-now-pay-later.
What does an interest rate measure?
The cost of borrowing money.
What is a credit score?
A number that summarizes information about how someone has used credit.
Name ONE advantage of paying with cash.
You don't borrow money or pay interest on the purchase, available when machine down, etc.
Name two details that can be included in a credit agreement.
Amount in credit, interest rate, payment schedule, fees.
What is store credit?
Credit offered by a store that allows you to buy something and pay later.
You borrow $100 at 10% simple interest for one year. How much interest would you pay?
$10
True or false: A credit score and a credit report are the same thing.
False. A credit score is a number; a credit report contains information about your credit history.
Name ONE possible advantage of using credit responsibly.
Convenience, building credit, history, or earning rewards/benefits.
What type of credit allows you to borrow, repay, and borrow again?
Revolving credit.
What does "buy-now-pay-later" allow a consumer to do?
Get an item now and pay for it later, usually through a payment plan.
You have a $200 balance with a 15% annual interest rate. Using simple interest for one year, how much interest is that?
Name TWO factors that can influence your credit score.
Payment history, amounts owed, length of credit history, new credit, or types of credit card.
Name ONE disadvantage of using credit.
Interest and fees, overspending, or taking on debt.
Maya buys a $60 game with a credit card and pays the credit card company later. Is this an example of credit?
Yes. She gets the item now and pays later.
What is an annual fee on a credit card?
A yearly charge for having the card.
You buy something for $300 and end up paying $30 in interest. What is the true total cost?
$330
Why might a lender look at your credit report?
To help decide how likely you are to repay borrowed money.
You have enough cash to buy something, but using your credit card would cause you to pay interest. Which option would usually cost less?
Cash.
Why should you read a credit agreement before using credit?
To fully understand everything you're agreeing to (ex. interest, schedule, fees, amount, etc.).
Why is it too simple to say that a credit card has just ONE interest rate?
Different uses or types of balances can have different rates and different amounts of payments/fees.
Why can making only the minimum payment on a credit card make a purchase cost more?
It can take longer to pay off the balance, causing more interest to accumulate.
Why is it a good idea to check your credit report yourself?
To monitor your credit and find possible errors or problems.
When deciding whether to use cash or credit, what TWO things should you compare?
The total cost, including interest/fees, and whether you can afford the purchase/payment.