Credit Process
What is credit? Give one example.
Credit is receiving goods, services, or money now with a promise to pay later. Example: Using a credit card to buy groceries.
Name the three major U.S. credit reporting agencies.
Equifax, Experian, TransUnion.
What is a credit score?
A credit score is a numerical summary of credit risk based on information in a credit report.
What is a depository institution? Give one example (bank or credit union).
A depository institution is a business that accepts deposits and provides financial services; example: commercial bank or credit union.
Name two savings tools
Savings account, checking account (for short-term saving), money market deposit account, certificate of deposit (CD).
Who is a borrower and who is a lender?
Borrower — person who receives funds or goods and promises to repay (e.g., a consumer using a loan). Lender — person or organization that provides funds to the borrower (e.g., a bank).
List two types of information you will find in a credit report.
Examples: Credit account information (balances, payment history), consumer personal information (name, addresses), public records (bankruptcies, liens), inquiry information.
Name one common credit scoring model
FICO (or VantageScore).
What does FDIC or NCUA insurance protect?
They insure deposits (up to coverage limits) at banks (FDIC) and credit unions (NCUA), protecting depositors if the institution fails (standard limit: $250,000 per depositor, per ownership type).
Which is more liquid: checking account or certificate of deposit (CD)?
Checking account is more liquid; CD is less liquid and usually charges penalties for early withdrawal.
What is credit history?
Credit history is a record of a person’s past borrowing and repayment behavior (loans, credit cards, on-time/late payments).
Describe what "inquiry information" on a credit report is, and give one example of a situation that would generate an inquiry.
Inquiry information shows requests to view your credit file; example: a lender checking your credit when you apply for a credit card or mortgage (a hard inquiry), or you checking your own report (a soft inquiry).
Give two actions that help build a good credit score.
Pay bills on time; keep credit card balances low (maintain reasonable credit utilization); avoid opening many new accounts; keep older accounts open.
Name two services you can get from a bank or credit union.
Examples: Checking account, savings account, debit card, ATMs, mobile/online banking, loans, safe-deposit boxes.
For an emergency fund you might need quickly, which savings tool is best and why?
Savings account (or checking linked to savings) — because it is liquid and allows quick access to funds with little or no penalty.
Give one way a borrower can make their credit history better.
Pay bills on time consistently (or: reduce credit card balances, set up automatic payments, avoid opening many new accounts).
Name two things that are NOT included in a credit report.
Examples: Race, religion, income level, medical information, education level, criminal background, buying habits. (Any two are acceptable.)
True or false: Higher credit scores usually get lower interest rates.
True
If a student wants low fees and mobile access, name one feature they should check before opening an account.
Check the account’s fee schedule for monthly maintenance fees and ATM fees, and confirm availability and quality of mobile banking/app features.
What is a money market account? Give one characteristic
A money market account typically offers higher interest than a regular savings account but often requires a higher minimum balance and may limit transactions.
Name two dangers of using payday loans or rent-to-own.
Very high fees/interest leading to large total cost; risk of falling into a cycle of debt or losing collateral (for rent-to-own, losing the item if payments stop).
If you find an error on your credit report, who should you contact first?
Contact the credit reporting agency (CRA) that issued the report and the company that provided the incorrect information. The CRA has 30 days to investigate.
Explain in one sentence why improving your credit score can save you money on loans.
Higher credit scores generally qualify you for lower interest rates, which reduces the total interest paid over the life of a loan.
Give one reason someone might choose a credit union instead of a commercial bank.
Credit unions are member-owned, often offer lower fees and higher interest rates on deposits.
If you open a savings account that pays 1% annual interest and you deposit $100 each month for one year, what is the approximate total balance after 12 months?
Using a simple approximation (ignore monthly compounding for ease):