Revolving Credit
True or False: If you max out your credit cards regularly, carrying high balances, this can increase your credit score.
False
What is a credit score?
This 3-digit number helps lenders determine how risky it is to lend you money.
What are common examples of installment credit?
Car loans, student loans, mortgages, and personal loans
This is a type of revolving credit account that when paid on time and kept under the credit limit can help improve your overall credit score.
Credit Card
What is FICO?
The most commonly used credit scoring model is called this, with scores ranging from 300 to 850.
How does an installment loan differ from revolving credit?
Installment loans have fixed payments and a set end date, revolving credit allows one to continue barrowing up to a limit.
Having several open revolving credit accounts with low balances can improve this component of your credit score
Credit Utilization Ratio.
What is payment history?
This factor makes up the largest portion (35%) of your credit score, showing how much of your available credit you're using.
What happens if you miss a payment on an installment loan?
It results in late fees, increased interest costs, and a negative impact on credit scores.
How does having multiple open revolving credit accounts affect your credit score? List both positive and negative effects.
It can lower your score if you have high balances or miss payments, but can improve it if you manage them well.
True or False? A high credit score (above 700) typically helps you get better rates on things like loans and credit cards.
True
What is a mortgage and how does it relate to installment credit
A mortgage is a long-term installment loan used to buy a home with monthly payments tat typically last 15-30 years.
According to the FICO Credit Scoring System, what percentage of your credit score depends on your payment history?
35%
What is a credit card?
This type of credit, where you borrow money up to a set limit and repay it over time, is often used by individuals to build credit.
How can making extra payments on an installment loan save money?
Extra payments reduce the principal faster(interest on your interest), which lowers the total interest paid over time.