Credit Scores & Reports
What is the primary purpose of a credit score?
A. To calculate a person’s annual income
B. To predict how likely a borrower is to repay debt
C. To record every purchase a person makes
D. To determine the amount in a person’s bank account
Answer: B. To predict how likely a borrower is to repay debt
What is the statement balance on a credit card bill?
A. The total owed at the end of the billing cycle
B. The amount of credit still available
C. The smallest required payment
D. The amount of interest charged during the year
Answer: A. The total owed at the end of the billing cycle
Which option best describes a line of credit?
A. A loan that must be borrowed all at once
B. A preapproved amount that can be accessed as needed
C. A savings account with a withdrawal penalty
D. A loan that does not require repayment
Answer: B. A preapproved amount that can be accessed as needed
What is the principal of a loan?
A. The total interest charged
B. The length of the repayment period
C. The original amount borrowed
D. The borrower’s monthly payment
Answer: C. The original amount borrowed
Which item does not normally affect a credit score?
A. Payment history
B. Amounts owed
C. Length of credit history
D. Annual income
Answer: D. Annual income
Which organization is not one of the three major credit reporting bureaus?
A. Equifax
B. TransUnion
C. PayPal
D. Experian
Answer: C. PayPal
What does APR stand for?
A. Average Payment Ratio
B. Annual Payment Requirement
C. Annual Percentage Rate
D. Account Percentage Return
Answer: C. Annual Percentage Rate
What makes a loan secured?
A. It has a fixed monthly payment
B. It is offered only by a bank
C. It is backed by collateral
D. It has a shorter repayment term
Answer: C. It is backed by collateral
Which information is not normally entered into a basic loan calculator?
A. Loan amount
B. Interest rate
C. Loan term
D. Borrower’s credit score
Answer: D. Borrower’s credit score
Which situation would most likely result in a hard credit inquiry?
A. Checking your own credit report
B. Applying for a new credit card
C. Receiving a prequalified loan advertisement
D. Reviewing your monthly bank statement
Answer: B. Applying for a new credit card
Which factor generally has the largest impact on a credit score?
A. Credit mix
B. Length of credit history
C. Number of bank accounts
D. Payment history
Answer: D. Payment history
Why can making only the minimum payment become expensive?
A. It automatically lowers the credit limit
B. It can increase the repayment time and total interest
C. It causes the account to close after one year
D. It prevents the borrower from making larger payments later
Answer: B. It can increase the repayment time and total interest
Why do credit and income matter especially when applying for an unsecured loan?
A. The loan has no collateral protecting the lender
B. The borrower is allowed to select the interest rate
C. The lender cannot review the borrower’s debts
D. Unsecured loans do not require applications
Answer: A. The loan has no collateral protecting the lender
Two loans have the same amount and interest rate. Which loan will usually produce the least total interest?
A. The loan with the shortest term
B. The loan with the lowest first payment
C. The loan with the longest term
D. The loan with the greatest number of payments
Answer: A. The loan with the shortest term
What does a credit freeze generally help prevent?
A. Interest charges on existing debt
B. Purchases made with an existing debit card
C. Approval of new credit accounts in the consumer’s name
D. Payments on an existing loan
Answer: C. Approval of new credit accounts in the consumer’s name
How long can many negative items, such as late payments, generally remain on a credit report?
A. About three years
B. About seven years
C. About twelve years
D. Until the debt is completely paid
Answer: B. About seven years
Which statement correctly compares credit cards, debit cards, and charge cards?
A. All three allow balances to revolve from month to month
B. Debit cards borrow money from a card issuer
C. Charge cards always withdraw money directly from checking
D. Credit cards may carry a balance, while charge cards generally require full payment
Answer: D. Credit cards may carry a balance, while charge cards generally require full payment
What is the main purpose of a loan application?
A. To guarantee the borrower will receive the loan
B. To immediately transfer money to the borrower
C. To remove the need for underwriting
D. To gather information needed to evaluate the request
Answer: D. To gather information needed to evaluate the request
Which information should be considered when comparing the complete cost of two loans?
A. Monthly payment and lender name only
B. APR, term, fees, payment, and total amount repaid
C. Loan amount and first payment only
D. Interest rate and advertising offer only
Answer: B. APR, term, fees, payment, and total amount repaid
What should a consumer do first after noticing an error on a billing statement?
A. Review the statement, identify the error, and gather evidence
B. Stop making every payment to the company
C. Immediately file a lawsuit
D. Close all existing credit accounts
Answer: A. Review the statement, identify the error, and gather evidence
A credit card has a balance of $1,350 and a credit limit of $3,000. What is the card’s credit utilization rate?
A. 30%
B. 35%
C. 45%
D. 55%
Answer: C. 45%
A credit card has a $1,200 balance and a 24% APR. Using a simplified monthly rate of 2%, approximately how much interest would be charged for one month?
A. $24
B. $48
C. $120
D. $288
Answer: A. $24
During underwriting, what does capacity refer to?
A. The value of the lender’s property
B. Whether the borrower’s income can support the new payment
C. The number of loans offered by the lender
D. Whether the loan is backed by collateral
Answer: B. Whether the borrower’s income can support the new payment
Loan A requires 36 monthly payments of $330. Loan B requires 60 monthly payments of $225. Which statement is correct?
A. Loan B saves $1,620 because its monthly payment is lower
B. Both loans cost the same because the original amount is equal
C. Loan A saves $1,620 because it costs $11,880 instead of $13,500
D. Loan A saves $3,300 because it has 24 fewer payments
Answer: C. Loan A saves $1,620 because it costs $11,880 instead of $13,500
A lender pressures a borrower to sign immediately, hides several fees, and charges an extremely high rate. What does this most likely represent?
A. Responsible underwriting
B. Nonprofit credit counseling
C. A traditional installment loan
D. Predatory lending
Answer: D. Predatory lending