Credit Score Factors
Good credit score = better chance of loan approval. (True or False)
Answer: True
What does APR stand for?
Answer: Annual Percentage Rate.
What is the best way to avoid interest on a credit card?
Answer: Pay in full and on time.
Paying bills on time is an example of a (good or bad?) credit decision?
Answer: Good.
Define Credit Report.
Answer: A detailed record of your credit history.
What is the most important factor in determining your credit score?
Answer: Payment history.
You will accumulate interest and pay more over time if you only make the minimum payment on your credit card. (True or False)
Answer: True
What is the difference between simple interest and compound interest?
Answer: Simple is based on principal only; compound is interest on interest.
What happens when you max out your credit cards?
Answer: Your credit utilization increases, which lowers your credit score.
Define Credit Limit.
Answer: The maximum amount you can borrow on a credit account.
What percentage of your credit score is based on amounts owed (credit utilization)?
Answer: 30%.
How does carrying a high balance on a credit card affect your credit score?
Answer: It increases credit utilization, which lowers your score.
What does it mean to default on a loan?
Answer: failing to repay it according to the terms of the loan agreement.
Why is co-signing a loan a risky financial decision?
Answer: You are responsible for the debt if the borrower doesn’t pay.
Define Credit Mix.
Answer: A variety of account types (credit cards, mortgage, auto loan).
How does having a longer credit history impact your score?
Answer: A longer credit history helps improve your score.
Credit Cards & Debit Cards are the same. (True or False)
Answer: False
What type of loan is for a house?
Answer: Mortgage
What is one downside of closing an old credit card account?
Answer: It shortens your credit history, which can lower your credit score.
Define Credit Score.
a numerical representation of a person's creditworthiness.
What are the five major factors that determine a credit score?
Answer: Payment history, credit utilization, length of credit history, new credit, and credit mix.)
What is the difference between a fixed interest rate and a variable interest rate?
Answer: Fixed stays the same; variable changes based on market rates.
If you take out a $10,000 loan at a 5% annual interest rate for 3 years, how much total interest will you pay?
Answer: $1,500
Payday loans typically have extremely high interest rates. (True or False)
Answer: True
Define Interest.
Answer: the cost of borrowing money