Credit basics
What is Credit?
The ability to borrow money now and repay it later.
What type of credit is a car loan?
Installment credit.
What does APR stand for?
Annual percentage rate
What is the highest possible credit score?
850
What’s one risk of credit cards?
Overspending or falling into debt.
What is credit limit?
The maximum amount a lender allows you to borrow.
What type of credit lets you borrow repeatedly up to a limit?
Revolving credit
What does APR include that a regular interest rate may not?
Fees and additional borrowing costs.
What’s the biggest factor in your credit score?
Payment History
What happens if you miss a credit card payment?
Your credit score drops and you may be charged late fees.
What is the purpose of using credit responsibly?
To build a strong credit history and avoid long-term debt.
What is an example of service credit?
Monthly electric or water bill.
Why is a 25% APR considered high?
It greatly increases the total amount paid back over time.
What is credit utilization?
The percentage of your credit limit that you’re using.
Why is maxing out a credit card bad for your score?
It raises your utilization rate and shows poor credit use.
What is a grace period on a credit card?
The time between the purchase date and when interest is charged if not paid in full.
What is one key difference between revolving and installment credit?
Revolving credit can be reused; installment credit is paid off in set payments.
If you borrow $1,000 at 20% APR and don’t pay it off, how much do you owe in a year?
$1,200
Why is keeping credit use under 30% important?
It helps improve or maintain a good credit.
What’s the danger of only making minimum payments?
Interest builds up and you stay in debt longer.
What is service credit and give one example?
Credit for services paid monthly, like a utility or cell phone bill.
What type of credit is a mortgage loan?
Installment credit.
What happens if you only pay the minimum on a credit card?
You stay in debt longer and pay more in interest.
Name 3 of the 5 credit score factors.
Payment history, amounts owed, credit mix, length of credit history, new credit.
What happens if your account goes to collections?
It severely damages your credit and stays on your report for years.