Teens & Credit
What law requires anyone under 21 to have a cosigner or sufficient income to get a credit card?
The CARD Act of 2009.
What is a payday loan?
A short-term, high-interest loan based on a postdated check.
What’s the first step to managing debt?
Know how much you owe (list all debts, due dates, and interest rates).
What does a credit score measure?
Your credit risk / likelihood to repay.
What is simple interest calculated on?
Only the original principal.
What is one sign that shows you are credit-ready?
Ability to budget/save, understanding credit basics, or maturity in spending.
What risk comes with a car title loan?
Losing your car if you can’t repay.
What happens if you miss two payments in a row?
Interest rates and finance charges increase.
What is the largest factor in your FICO score?
Payment history (35%).
What is compound interest?
Interest earned on both principal and previously earned interest.
What is a secured credit card backed by?
A cash security deposit.
Rent-to-own payments often cost more than buying outright. True or False?
True
What’s the difference between the debt avalanche and debt snowball methods?
Avalanche = highest interest first; Snowball = smallest balance first.
What is credit utilization, and what percentage is recommended?
The % of credit used; keep it under 30%.
Write the simple interest formula.
Interest = Principal × Rate × Time.
What is one risk of becoming an authorized user on someone else’s card?
If they misuse the card, it can damage your credit.
Name two signs of predatory lending.
Hidden fees, high APRs, unrealistic promises, or only auto-withdrawal payment options.
What does Chapter 7 bankruptcy involve?
Liquidation of assets to repay creditors.
Name the five categories used in calculating a FICO score.
Payment history, amounts owed, length of credit history, new credit, types of credit.
Why is compound interest better for savers than simple interest?
It grows money faster since interest builds on interest.
Why is it dangerous to use credit cards as a form of “income supplement”?
It leads to overspending and debt you can’t repay.
How do payday loans trap borrowers in cycles of debt?
Extremely high fees and short repayment terms force borrowers to re-borrow.
What law protects consumers from harassment by debt collectors?
The Fair Debt Collection Practices Act.
What is a “thin file” in credit reporting?
Too little credit history to generate a score.
What is the Rule of 72 used for?
To estimate how long it takes money to double at a given interest rate.