Understanding Credit
What could be a consequence of missing credit card payments?
It could negatively impact your credit score.
What is the most common example of revolving credit?
Credit Card
What distinguishes a credit card from a debit card?
What is the typical term (maturity) for an auto loan?
3-6 years
What is the most critical factor in determining your FICO credit score?
Payment History
What is one way to avoid the dangers of debt?
Avoid debt altogether
What is a common feature of secured debt?
It is backed by collateral
What is one thing you can earn from a rewards credit card?
Points, cash back, or miles for purchases.
Why is homeownership considered a way to build wealth?
Because paying a mortgage builds equity in the property over time.
What is the recommended maximum credit utilization ratio to maintain a healthy credit score?
30%
What is one risk associated with using credit cards for everyday purchases?
It can lead to high-interest charges if the balance is not paid in full each month.
Which factor directly influences your ability to access credit by indicating the risk level to lenders?
Credit Score
What is the grace period on a credit card?
The period where you can pay your balance without incurring interest charges.
What happens if a homeowner defaults on their mortgage loan?
The lender can foreclose on the property and sell it to recover the unpaid loan balance.
What should you do if you are a victim of identity theft?
Report the theft to the Federal Trade Commission (FTC).
Why is building a credit history important?
A good credit history makes it easier to obtain loans with favorable terms.
What type of credit involves borrowing a fixed amount of money that is repaid in equal monthly payments?
Installment Credit
What happens if you only pay the minimum payment on your credit card balance?
Interest will be charged on the remaining balance.
What is an amortization schedule used for in a loan?
To break down each payment into principal and interest over time.
What does the term "credit mix" refer to?
The variety of credit types used by an individual.
What is a benefit of using credit responsibly?
It allows you to make large purchases now and pay for them over time.
Which of the following is a primary reason government programs provide credit?
To promote economic stability and growth
What two things could negatively impact your credit score when using a credit card?
Maxing out your credit card and missing payments.
What is the primary benefit of choosing a fixed interest rate mortgage over a floating interest rate mortgage?
A fixed interest rate mortgage has payments that remain constant over time.
Which of the following is NOT a factor in calculating a FICO credit score:
Amounts Owed
Payment History
Employment History
Length of Credit History
Employment History