Personal Finance Credit and Loans Practice Exam
What is the primary difference between a personal loan and an auto loan?
A) Personal loans are only available to people with excellent credit
B) Auto loans are secured by the vehicle, whereas personal loans are usually unsecured
C) Personal loans have higher interest rates than auto loans
D) Auto loans have shorter repayment terms than personal loans
Which type of loan is typically secured by property such as a home?
A) Personal loan
B) Auto loan
C) Mortgage loan
D) Payday loan
When you take out a loan, what does the interest rate primarily represent?
A) The monthly payment amount
B) The cost of borrowing money
C) The length of time to pay back the loan
D) The fees associated with the loan
What does a higher interest rate on a loan mean for the borrower?
A) The borrower will repay the loan in a shorter period
B) The borrower will pay less money overall
C) The borrower will repay more money in total
D) The borrower will have a smaller monthly payment
A loan term refers to what aspect of a loan?
A) The interest rate
B) The time over which the loan is repaid
C) The total amount borrowed
D) The monthly repayment amount
Which of the following is NOT a factor in determining your credit score?
A) Payment history
B) Credit utilization ratio
C) Income level
D) Length of credit history
How can an individual improve their credit score?
A) Apply for multiple loans at once
B) Make on-time payments and reduce debt
C) Close old credit accounts
D) Avoid using credit cards altogether
What is the most important factor in determining your credit score?
A) Credit inquiries
B) Types of credit used
C) Payment history
D) Credit utilization ratio
What is a secured loan?
A) A loan that requires a co-signer
B) A loan backed by an asset like a car or home
C) A loan that can be used for any purpose
D) A loan with a fixed interest rate
Which of the following can negatively impact your credit score?
A) Timely bill payments
B) High credit card balances
C) Low credit card balances
D) Low credit utilization ratio
What is the purpose of a credit report?
A) To determine how much credit a person can borrow
B) To list all of an individual’s credit accounts and their payment history
C) To track a person’s income and tax records
D) To report the interest rates available for loans
What is the maximum amount that can be borrowed through a payday loan?
A) It depends on the borrower’s credit score
B) $500
C) $1,000
D) It varies by state and lender
What does the term “credit utilization ratio” refer to?
A) The total amount of debt a person owes
B) The percentage of available credit being used
C) The length of time a person has used credit
D) The interest rate on a credit account
Which type of loan is most commonly used to purchase a home?
A) Mortgage loan
B) Personal loan
C) Auto loan
D) Student loan
How does using credit cards responsibly help your credit score?
A) By reducing available credit
B) By increasing credit inquiries
C) By keeping balances low and making timely payments
D) By applying for more credit cards
What is a co-signer’s role in a loan agreement?
A) To offer collateral for the loan
B) To ensure the borrower makes payments if they fail to do so
C) To negotiate the interest rate
D) To provide a larger loan amount
Which of the following is a consequence of defaulting on a loan?
A) Your credit score will improve
B) You may face legal action or wage garnishment
C) The loan will be forgiven
D) Your interest rate will decrease
Which of the following is considered a good strategy for managing credit card debt?
A) Paying only the minimum monthly payment
B) Transferring balances between cards frequently
C) Paying off the balance in full each month
D) Applying for new credit cards to increase available credit
What is the term for a loan that has a fixed repayment schedule and an interest rate that does not change over the term of the loan?
A) Variable-rate loan
B) Fixed-rate loan
C) Interest-only loan
D) Balloon loan
How can missed payments affect your credit score?
A) They will have no effect on the score
B) They may lower your score
C) They will increase your score
D) They may result in a higher interest rate on future loans
What is one potential advantage of using a credit card?
A) Higher interest rates
B) Frequent penalty fees
C) Rewards such as cash back or points
D) Reduced credit score
Which of the following is an example of revolving credit?
A) A mortgage loan
B) A payday loan
C) A home equity line of credit (HELOC)
D) A car loan
What is the annual percentage rate (APR) of a loan?
A) The total amount borrowed
B) The interest rate charged over a year, including fees
C) The monthly payment amount
D) The credit score required to qualify for the loan
What does it mean if a loan is “underwater”?
A) The borrower is behind on payments
B) The borrower owes more than the value of the collateral
C) The interest rate is lower than the market rate
D) The loan is paid off early
What is one of the benefits of building good credit?
A) Lower interest rates on loans and credit cards
B) Higher credit utilization ratio
C) Increased loan amounts
D) Increased credit inquiries
What does it mean to “consolidate” loans?
A) To borrow more money to pay off existing loans
B) To merge multiple loans into one with a single payment
C) To defer payments until after a specified period
D) To increase the term of the loan
When should you consider refinancing a loan?
A) When interest rates are lower than your current rate
B) When your credit score has significantly dropped
C) When you want to extend your loan term for a smaller monthly payment
D) All of the above
What is a credit limit?
A) The total amount of interest charged on a loan
B) The maximum amount you can borrow on a credit card or line of credit
C) The time period allowed to pay off a loan
D) The amount a borrower must pay back each month
How can late payments affect your credit score?
A) They have no effect on your score
B) They may reduce your credit score significantly
C) They improve your credit score over time
D) They only affect the payment terms of the loan
What is an important factor to consider before taking out a loan?
A) The monthly payment amount
B) The loan’s interest rate and term length
C) Your ability to repay the loan without financial strain
D) All of the above
What is a payday loan?
A) A long-term loan used for home improvements
B) A short-term loan with a high interest rate, typically due by the borrower’s next payday
C) A loan used to pay for education expenses
D) A loan for purchasing large items like cars
Which of the following is a common term used in the context of mortgage loans?
A) Principal balance
B) Credit limit
C) APR
D) All of the above
What does the term “fixed interest rate” mean for a loan?
A) The interest rate will change during the loan term
B) The interest rate remains the same throughout the loan term
C) The loan has no interest
D) The interest rate decreases over time
Which of the following would typically improve a person’s credit score?
A) Not using any credit cards at all
B) Frequently opening new credit accounts
C) Keeping credit card balances low and paying bills on time
D) Closing old credit accounts
What is the minimum monthly payment typically based on for a credit card?
A) The total balance owed
B) The minimum purchase amount
C) A percentage of the outstanding balance
D) The annual fee charged by the card issuer
Which of the following best defines a “loan term”?
A) The time it takes to approve a loan
B) The time period the borrower has to repay the loan
C) The amount of interest paid on the loan
D) The credit score required to get a loan
What can happen if you exceed your credit card’s credit limit?
A) Your credit score will automatically increase
B) You may face penalty fees and higher interest rates
C) Your credit limit will increase automatically
D) Your loan term will decrease
What is a home equity loan?
A) A loan secured by your savings account
B) A loan based on the value of your home
C) A loan used exclusively for home repairs
D) A loan given to renters for purchasing homes
Which of the following is considered a revolving credit account?
A) Mortgage
B) Auto loan
C) Credit card
D) Student loan
How is the “credit utilization ratio” calculated?
A) Total credit card balance divided by total credit available
B) Total amount of debt owed divided by total annual income
C) The number of new credit inquiries divided by credit score
D) The total credit card payments divided by the interest rate
When applying for a loan, what is typically required to assess your ability to repay?
A) Your credit history
B) Your current employment and income details
C) The total amount of debt you already owe
D) All of the above
What is a balloon payment in the context of loans?
A) A payment due at the beginning of the loan term
B) A large payment due at the end of the loan term
C) A monthly payment that decreases over time
D) A payment made to pay off loan fees
How does a debt consolidation loan work?
A) It combines multiple debts into one, often with a lower interest rate
B) It eliminates all existing debts
C) It delays payments on loans without reducing the total balance
D) It increases the monthly payments to pay off debts faster
What does a co-borrower on a loan application signify?
A) The co-borrower is solely responsible for repayment
B) The co-borrower shares equal responsibility for repaying the loan
C) The co-borrower is a guarantor, but not responsible for repayment
D) The co-borrower will only be listed on the credit report
How can you avoid paying interest on a credit card?
A) Only making the minimum monthly payment
B) Paying off the balance in full before the due date
C) Transferring balances to a new card
D) Paying after the statement date
What is the main difference between a secured and unsecured loan?
A) Secured loans require collateral; unsecured loans do not
B) Secured loans have higher interest rates
C) Unsecured loans are easier to qualify for
D) Unsecured loans require a co-signer
What does it mean to “refinance” a loan?
A) To change the terms of the loan by taking out a new loan to pay off the old one
B) To make an extra payment toward the loan principal
C) To apply for a credit card to pay off the loan
D) To change the collateral backing the loan
What is the difference between a credit score and a credit report?
A) A credit score shows your overall creditworthiness, while a credit report lists your credit history
B) A credit score lists all your credit accounts, while a credit report shows your creditworthiness
C) A credit report shows your monthly loan payments, while a credit score determines eligibility
D) There is no difference
What does “defaulting” on a loan mean?
A) Paying off the loan in full before the due date
B) Missing a payment or failing to meet the terms of the loan
C) Refinancing the loan to obtain better terms
D) Negotiating a lower interest rate
How does making only the minimum payment on a credit card affect your debt?
A) It will reduce the debt faster
B) It may result in more interest charged over time
C) It will prevent any late fees
D) It will improve your credit score
What is the effect of consolidating high-interest debts into a lower-interest loan?
A) It will increase the monthly payments
B) It can lower the total interest paid over time
C) It will eliminate the need to make payments
D) It will reduce the total amount owed
Which loan type is specifically used to buy a vehicle?
A) Mortgage
B) Auto loan
C) Home equity loan
D) Student loan
What should you do if you have an outstanding credit card balance and want to reduce interest charges?
A) Make only the minimum payment
B) Transfer the balance to a lower-interest card
C) Delay payments until the next billing cycle
D) Apply for a payday loan to pay off the balance
How often can you check your credit report for free?
A) Once every six months
B) Once per year from each of the three major credit bureaus
C) Once every two years
D) Once every three years
What is an unsecured loan?
A) A loan that requires an asset, such as a car or house, to secure the loan
B) A loan with no collateral required from the borrower
C) A loan that is approved without reviewing the borrower’s credit score
D) A loan that requires a cosigner for approval
What happens if you miss a payment on a loan?
A) The payment amount will be added to your next payment
B) Your loan will automatically be extended
C) You may incur late fees, and it could negatively affect your credit score
D) The interest rate will decrease
What does it mean if a loan has a “grace period”?
A) The loan can be repaid after the due date without penalty
B) The borrower is allowed to extend the loan term
C) The loan interest rate is reduced during the grace period
D) The borrower is granted a lump sum to cover payments
What is one potential drawback of using a payday loan?
A) Low-interest rates
B) Extended repayment terms
C) Very high-interest rates and fees
D) No impact on credit score
Why is it important to read the fine print before accepting a loan offer?
A) To determine the number of payments
B) To identify all fees and charges associated with the loan
C) To confirm the loan term
D) All of the above
How can maintaining a low credit utilization ratio improve your credit score?
A) It demonstrates that you are using credit responsibly and not overextending yourself
B) It allows you to qualify for larger loans
C) It automatically lowers your credit card interest rates
D) It increases the available credit limit
What is the primary benefit of a student loan?
A) No interest is charged
B) The loan does not need to be repaid
C) The loan is specifically for funding educational expenses
D) The loan can be used for any purpose
Which of the following is a common way to increase your credit score?
A) Frequently applying for new credit
B) Making late payments
C) Reducing your credit card balances
D) Closing old credit accounts
What is a credit card’s APR (Annual Percentage Rate)?
A) The monthly interest rate
B) The cost of borrowing on a yearly basis, including interest and fees
C) The limit on how much you can charge to the card
D) The total amount of your credit card balance
What does “amortization” refer to in terms of loans?
A) The process of increasing the loan amount
B) The process of paying off a loan through scheduled, regular payments
C) The total interest charged over the life of the loan
D) The process of refinancing the loan
How does a personal loan typically differ from a mortgage loan?
A) A personal loan is secured by real property, while a mortgage is unsecured
B) A personal loan has a lower interest rate than a mortgage
C) A mortgage is specifically for buying a home, while a personal loan can be used for various purposes
D) A mortgage is paid back more quickly than a personal loan
What is a “credit limit” on a credit card?
A) The amount of interest you are charged
B) The maximum amount of debt you can owe on the card
C) The minimum payment due each month
D) The length of time you can carry a balance on the card
What happens when you make a late payment on a loan or credit card?
A) Your credit score may drop
B) You may face late fees and a higher interest rate
C) It can impact your ability to borrow in the future
D) All of the above
What is the purpose of a credit report?
A) To track your savings account balance
B) To list your credit accounts and your payment history
C) To show your overall net worth
D) To list your student loans only
What is a revolving credit account?
A) A loan for a specific purpose that must be paid off within a set term
B) A loan that requires collateral
C) A line of credit where you can borrow repeatedly up to a certain limit
D) A loan with a fixed interest rate
Which of the following is a disadvantage of using a credit card?
A) It can help build your credit score
B) You may incur high-interest rates if you don’t pay in full each month
C) It provides rewards like cash back or points
D) It increases your credit limit automatically
What is a car loan?
A) A loan used to purchase real estate
B) A loan used specifically for purchasing a car
C) A loan for personal expenses like vacations
D) A loan secured by future earnings
What should you do if you notice an error on your credit report?
A) Ignore it, as it won’t affect your credit
B) Contact the credit bureau to dispute the error
C) File for bankruptcy
D) Close your credit accounts
What is a balance transfer in terms of credit cards?
A) Transferring funds from a bank account to pay off credit card debt
B) Moving your balance from one credit card to another, often to save on interest
C) Paying off your credit card with a loan from another source
D) Transferring your credit card balance to a new account with a higher limit
What is a credit inquiry?
A) A request by a lender to check your credit report
B) A request to increase your credit limit
C) The process of paying off credit debt
D) The report showing your credit score
What is the advantage of a low interest rate on a loan?
A) It increases the amount you owe
B) It reduces the total amount you repay over time
C) It shortens the loan term
D) It reduces the loan fees
What is a home equity line of credit (HELOC)?
A) A loan used for purchasing a home
B) A type of mortgage with fixed interest
C) A line of credit secured by the equity in your home
D) A loan for making improvements on your home
What is an installment loan?
A) A loan with no set repayment term
B) A loan that is paid off in regular, fixed payments
C) A loan given to you based on your credit score
D) A loan for luxury purchases like vacations
How can making only the minimum payment on a credit card affect you?
A) It allows you to pay off the debt faster
B) It may result in you paying more interest in the long term
C) It reduces your credit limit
D) It improves your credit score
What is the advantage of paying a higher monthly payment on a loan?
A) It extends the loan term
B) It reduces the total amount of interest paid over the life of the loan
C) It lowers your credit score
D) It reduces your available credit limit
What is a personal loan?
A) A loan used exclusively for purchasing a car
B) A loan you take out for personal expenses that is typically unsecured
C) A loan for purchasing a home or real estate
D) A loan that requires collateral like a home or vehicle
Which of the following can help prevent credit card fraud?
A) Sharing your PIN with friends
B) Using public Wi-Fi for transactions
C) Regularly monitoring your credit card statements and credit reports
D) Ignoring suspicious transactions on your card
What is the key difference between a secured and an unsecured credit card?
A) Secured credit cards require a deposit, while unsecured ones do not
B) Unsecured credit cards have higher limits than secured cards
C) Secured cards charge lower interest rates
D) Unsecured cards are for students only
What is an interest-only loan?
A) A loan where you only pay the interest for a specified period
B) A loan that charges no interest
C) A loan that requires both principal and interest payments from the start
D) A loan with no repayment schedule
How does debt-to-income ratio affect your ability to get a loan?
A) The higher your debt-to-income ratio, the better your chances of loan approval
B) Lenders prefer a lower debt-to-income ratio, as it indicates you are not over-leveraged
C) Debt-to-income ratio is irrelevant to loan approval
D) The debt-to-income ratio only applies to credit card applications
What is the most important factor in determining your credit score?
A) The number of credit accounts you have
B) Your payment history
C) The amount of debt you owe
D) The length of time you’ve had credit
What is a “credit freeze”?
A) A temporary reduction in your credit limit
B) A suspension of credit card interest charges
C) A temporary block on access to your credit report
D) A change to your credit card payment terms
What is the role of a credit counselor?
A) To help you avoid paying any loans
B) To provide advice and assistance in managing debt and improving your credit
C) To reduce the interest rate on your loans
D) To increase your credit limit automatically
How do credit card rewards work?
A) You earn rewards points that can be redeemed for purchases or cash
B) Rewards are automatically applied as discounts on purchases
C) They help reduce the interest rate on the credit card
D) They increase your credit score
What is “credit risk”?
A) The likelihood that a borrower will be able to repay a loan
B) The chance of a decrease in your credit limit
C) The penalty for late payments
D) The fees associated with using credit cards
What is the minimum amount due on a credit card bill?
A) The total amount of the credit card debt
B) A small portion of the balance to keep the account current
C) The interest charged for the month
D) The balance after any rewards are applied
Which of the following best describes the purpose of credit insurance?
A) To protect against high-interest rates
B) To guarantee you will never default on a loan
C) To cover loan repayments in case of death, disability, or unemployment
D) To reduce the interest on loans
What is a payday loan?
A) A loan that is paid back in full by the next payday
B) A loan that provides a monthly payment plan
C) A loan that has a long repayment term
D) A loan that requires collateral
What is a credit card’s grace period?
A) The time during which you are allowed to pay off your balance without being charged interest
B) The time before your credit card is cancelled
C) The time after making a payment before the credit card company can charge you interest
D) The time during which you can receive a refund for a purchase
What is the difference between a fixed-rate loan and an adjustable-rate loan?
A) Fixed-rate loans have varying interest rates; adjustable-rate loans have a constant rate
B) Fixed-rate loans have interest rates that change; adjustable-rate loans have a constant rate
C) Fixed-rate loans have constant interest rates; adjustable-rate loans have interest rates that change
D) Fixed-rate loans are unsecured; adjustable-rate loans are secured
What should you do if you’re struggling to make payments on your credit card?
A) Ignore the debt and it will go away
B) Contact your creditor to discuss payment options or financial hardship programs
C) Close your account and stop using your card
D) Transfer the balance to another credit card without contacting the creditor
What is the advantage of consolidating high-interest debt into a personal loan?
A) You can reduce your debt faster
B) You may receive a lower interest rate, saving money on interest payments
C) It allows you to increase your available credit
D) It eliminates the need for monthly payments
Which of the following is typically true about a car loan?
A) It has a variable interest rate
B) It is often secured by the car being purchased
C) The loan balance increases over time
D) The loan can be used for any type of purchase
What is the purpose of a co-signer on a loan?
A) To guarantee the borrower’s repayment if they fail to pay
B) To reduce the interest rate on the loan
C) To increase the loan amount
D) To act as the primary borrower
Which of the following does not typically affect your credit score?
A) Your payment history
B) The length of your credit history
C) Your annual income
D) The number of credit inquiries
What is a major disadvantage of using credit cards to finance purchases?
A) Credit cards offer rewards and benefits
B) You may accumulate high-interest debt if balances are not paid off
C) You can build your credit score over time
D) Credit cards can be used for emergency purchases
What does it mean to “default” on a loan?
A) Paying the loan off early
B) Missing a payment or failing to repay the loan according to the terms
C) Refinancing the loan with a lower interest rate
D) Increasing the loan amount
What does a credit card issuer typically consider when determining your credit limit?
A) Your credit score and income
B) Your loan history
C) Your home address
D) Your monthly spending habits
Which of the following is a benefit of having a credit history?
A) It allows you to avoid paying taxes
B) It helps you qualify for loans with better terms
C) It increases your credit card limits automatically
D) It guarantees you will never pay interest
What is an unsecured loan?
A) A loan that is backed by collateral
B) A loan that does not require any collateral
C) A loan with a low interest rate
D) A loan for home repairs
What is a mortgage?
A) A loan taken out to cover tuition costs
B) A type of credit card loan
C) A loan used to purchase a home or property
D) A loan for car repairs
What is the best way to avoid paying interest on a credit card?
A) Only make the minimum payments each month
B) Carry a balance over multiple months
C) Pay off the balance in full before the due date each month
D) Apply for multiple credit cards at once
What is a debt consolidation loan?
A) A loan that allows you to buy more credit cards
B) A loan that combines multiple debts into one payment
C) A loan that consolidates your credit score
D) A loan used exclusively for medical bills
How is the interest on a car loan typically calculated?
A) It is charged based on the remaining balance of the loan
B) It is fixed regardless of the balance
C) It is calculated only on the amount borrowed initially
D) It is not calculated on car loans
What is the difference between a credit report and a credit score?
A) A credit report is a numerical representation of your creditworthiness; a credit score is a detailed report of your credit history
B) A credit report is a list of your credit accounts and payment history; a credit score is a numerical value representing your creditworthiness
C) A credit score includes your entire financial history; a credit report includes just credit-related information
D) There is no difference; they are the same
Which of the following is considered a secured loan?
A) Credit card loan
B) Student loan
C) Mortgage loan
D) Personal loan
How does a cash advance on a credit card work?
A) You are borrowing money against your credit limit, and interest is charged immediately
B) You can use it for any purchase
C) You get a discount on interest rates
D) The balance is due after 60 days
What is an introductory APR on a credit card?
A) A fixed rate that applies for the life of the card
B) A lower interest rate that applies for a limited time after opening a new account
C) The highest interest rate available on the card
D) The rate at which interest is applied to unpaid balances after one year
What is the purpose of a home equity loan?
A) To pay for any personal expenses
B) To use the equity in your home as collateral for a loan
C) To consolidate student loans
D) To cover medical bills
What does it mean to “pay off” a loan early?
A) Paying the entire balance before the loan term is up
B) Making only the minimum required payments
C) Refinancing the loan to a lower rate
D) Not paying the loan at all
How can paying down your credit card balance impact your credit score?
A) It may lower your credit score
B) It has no impact on your credit score
C) It can improve your credit score
D) It will cause your credit score to remain the same
What does “interest rate” refer to?
A) The amount of money borrowed
B) The fees associated with a loan
C) The percentage of the loan amount charged as interest annually
D) The term length of the loan
What is a “payoff amount” on a loan?
A) The amount still owed on the loan, including any interest and fees
B) The interest rate charged on the loan
C) The loan term
D) The initial amount borrowed
What should you do if you are considering refinancing a loan?
A) Ignore the loan terms and focus only on the interest rate
B) Compare the new loan terms with your current loan to ensure it will save you money
C) Only refinance if the new loan term is shorter than the current one
D) Refinance only if your credit score has increased significantly
What is the main purpose of an auto loan?
A) To borrow money for purchasing a home
B) To borrow money for purchasing a car
C) To invest in stocks
D) To make repairs to your car
What is the most important factor in obtaining favorable loan terms?
A) The amount of money you want to borrow
B) Your credit score
C) The length of your loan
D) The type of loan
What does APR stand for in relation to credit cards and loans?
A) Annual Payment Rate
B) Annual Percentage Rate
C) Average Payment Rate
D) Annual Principal Rate
Which of the following would likely result in a higher credit score?
A) Making timely payments and keeping credit utilization low
B) Missing a payment and closing credit card accounts
C) Taking out multiple loans at once
D) Paying only the minimum payment on your credit card
What does it mean to “default” on a loan?
A) Refinancing the loan
B) Paying off the loan early
C) Failing to make required payments
D) Increasing the loan amount
What is the primary purpose of a personal loan?
A) To finance home improvement projects
B) To buy a car
C) To consolidate existing debt or cover personal expenses
D) To cover business expenses
What is the difference between a revolving credit account and a term loan?
A) A revolving credit account has a fixed interest rate, while a term loan has a variable rate
B) A revolving credit account allows you to borrow money repeatedly, while a term loan is a one-time loan with fixed payments
C) A revolving credit account requires collateral, while a term loan does not
D) There is no difference
What does the term “credit utilization” refer to?
A) The amount of credit available to you
B) The percentage of your available credit that you are currently using
C) The number of credit accounts you have
D) The type of credit cards you hold
What does a “secured loan” require?
A) A co-signer
B) A good credit score
C) Collateral to back the loan
D) A variable interest rate
Which of the following could result in a higher credit score?
A) Regularly making late payments
B) Increasing your credit utilization
C) Maintaining a long credit history with on-time payments
D) Closing unused credit accounts
What does the “grace period” on a credit card mean?
A) A period during which you can make additional purchases without being charged
B) A period after the bill is due in which no interest is charged if you pay the balance in full
C) A period after the bill is due during which you can make partial payments
D) A period during which your interest rate is temporarily reduced
Which of the following could hurt your credit score?
A) Paying your bills on time
B) Having a mix of credit types
C) Missing a payment
D) Keeping credit card balances low
How does a mortgage loan work?
A) The lender provides funds for a home purchase and holds the title to the property as collateral
B) The borrower pays a lump sum amount upfront
C) The borrower does not need to repay the loan
D) The loan amount is paid back in a single payment
What is the best way to improve your credit score over time?
A) Pay off credit card balances in full each month
B) Apply for as many credit cards as possible
C) Make only minimum payments
D) Avoid using credit altogether
Which of the following is typically true of a student loan?
A) It requires collateral
B) It has a low interest rate
C) It is not reported on your credit report
D) It requires monthly payments immediately after disbursement
Which of the following could indicate that a credit card offer is too good to be true?
A) A low introductory APR
B) Fees that seem unusually high
C) A rewards program
D) A long grace period
How is the interest on most credit cards typically calculated?
A) On the total amount of purchases made
B) Only on the unpaid balance at the end of the month
C) Based on the amount of income the borrower has
D) Based on the loan term length
What is the purpose of a “credit freeze”?
A) To increase your credit limit
B) To prevent unauthorized access to your credit report
C) To decrease your credit card interest rate
D) To improve your credit score
What does it mean to “carry a balance” on a credit card?
A) Paying the entire balance in full each month
B) Making only the minimum required payment and carrying over the rest of the balance to the next month
C) Paying a higher amount than the minimum required
D) Using your credit card for purchases without interest
Which of the following is true about a home equity line of credit (HELOC)?
A) It is a fixed loan amount with no possibility of borrowing more
B) The loan amount is based on the value of your home
C) You must pay the entire loan balance at once
D) It cannot be used for home improvements
What is a common requirement for applying for a personal loan?
A) A co-signer
B) Good credit
C) Real estate as collateral
D) A significant down payment
Which of the following would be considered a secured loan?
A) A student loan
B) A mortgage loan
C) A payday loan
D) A personal loan
What is the main disadvantage of a payday loan?
A) The interest rate is usually much higher than other types of loans
B) It requires long repayment terms
C) It has a fixed interest rate
D) It is available only to high-income earners
Which of the following would most likely lead to a credit card application being denied?
A) A high credit score
B) A large income
C) A history of late payments
D) A low level of credit utilization
How does using a credit card responsibly help you?
A) It allows you to avoid paying taxes
B) It improves your credit score and helps you qualify for future loans
C) It prevents the need to make monthly payments
D) It increases your available credit automatically
What is the primary purpose of a credit report?
A) To track your monthly spending habits
B) To summarize your loan repayment history
C) To show how much credit you have available
D) To calculate your credit score
Which of the following is a common type of unsecured loan?
A) Mortgage
B) Car loan
C) Personal loan
D) Home equity loan
What is the purpose of a credit card annual fee?
A) To increase the credit limit
B) To charge a one-time penalty for late payments
C) To cover the cost of managing the credit card account
D) To reduce your interest rates
Which of the following is the most common reason for applying for a personal loan?
A) Purchasing a car
B) Consolidating credit card debt
C) Purchasing a home
D) Paying for vacation expenses
How does interest accrue on a credit card balance?
A) Interest is charged immediately on all new purchases
B) Interest is charged only on the outstanding balance from the previous billing cycle
C) Interest is not charged if you make the minimum payment
D) Interest is waived for the first 30 days of the loan
What does a “debt-to-income ratio” measure?
A) The total amount of debt compared to your income
B) Your credit score
C) Your monthly expenses
D) The amount of money you spend on credit cards
What is the purpose of a credit card’s credit limit?
A) To limit the amount of interest you pay
B) To limit the amount of debt you can carry
C) To limit the number of purchases you can make
D) To set the maximum reward points you can earn
What is the main advantage of a low-interest rate on a loan?
A) Lower monthly payments
B) Faster repayment period
C) No need to make payments for the first year
D) Lower down payment
What is the primary factor in determining your credit score?
A) Your income level
B) Your debt-to-income ratio
C) Your credit history and payment record
D) The type of credit card you use
Which of the following would be considered a good strategy for paying off credit card debt?
A) Making only minimum payments and carrying a balance
B) Paying off the highest interest rate debt first
C) Consolidating all debt into a single loan with higher interest
D) Taking out new loans to pay off the old debt
What is a key benefit of maintaining a good credit score?
A) Higher interest rates on loans
B) Better job opportunities
C) Easier access to low-interest loans and credit cards
D) Avoiding paying taxes
What is a common reason that credit card companies may raise your interest rate?
A) If you consistently pay off your balance in full
B) If you miss payments or make late payments
C) If you apply for a new loan
D) If you increase your credit utilization
Which of the following is typically true about a credit score?
A) It is a fixed number and does not change
B) It is calculated based only on the amount of debt you have
C) It can be improved by making timely payments and reducing debt
D) It is determined by the lender you apply for loans with
What is an example of a collateralized loan?
A) A payday loan
B) A personal loan
C) A car loan
D) A student loan
When taking out an auto loan, what is typically used as collateral?
A) The buyer’s home
B) The borrower’s paycheck
C) The car itself
D) The buyer’s credit score
What happens if you do not make the minimum payment on your credit card?
A) Your credit limit will increase
B) Your credit card issuer may charge you a late fee and increase your interest rate
C) Your balance will be forgiven
D) Your loan term will be shortened
What is the primary purpose of a credit card balance transfer?
A) To consolidate multiple credit card balances into one
B) To transfer your credit card rewards to another account
C) To increase the credit limit on your card
D) To earn a lower APR on all credit cards
How does the length of your credit history affect your credit score?
A) A longer credit history usually helps improve your credit score
B) A shorter credit history is better for your score
C) It has no effect on your score
D) It only matters if you have a mix of credit types
What is one advantage of using a debit card over a credit card?
A) It offers rewards points
B) It builds your credit score
C) It allows you to borrow money
D) It prevents you from spending more than you have in your account
What is one way to lower your credit card’s interest rate?
A) Make late payments
B) Ask your credit card company for a lower rate
C) Use a credit card with no interest rates
D) Apply for multiple credit cards
What should you consider when deciding between a secured and an unsecured loan?
A) Whether you need a high credit limit
B) Whether you want to avoid paying interest
C) Whether you are willing to provide collateral for the loan
D) Whether the loan is a student loan
How can taking out a personal loan impact your credit score?
A) It will immediately increase your score
B) It can lower your score initially due to the hard inquiry and new debt
C) It has no effect on your credit score
D) It will improve your credit score in the long run
What is the primary disadvantage of using payday loans?
A) Low interest rates
B) Flexible repayment terms
C) Extremely high interest rates and fees
D) It negatively impacts your credit score
How can having multiple credit cards affect your credit score?
A) It can lower your score if you carry large balances on each card
B) It will always improve your credit score
C) It has no effect on your credit score
D) It can only negatively impact your score if you miss payments
What is a common reason to refinance a mortgage loan?
A) To decrease the loan’s interest rate and monthly payment
B) To increase the amount owed on the home
C) To change the loan’s terms to a higher interest rate
D) To eliminate the loan’s principal amount
What does a credit card’s “minimum payment” typically include?
A) The total balance owed
B) The interest and a small portion of the principal balance
C) The full balance of the loan
D) Only the fees associated with the card
What is a home equity loan used for?
A) To buy a second home
B) To refinance an existing loan
C) To borrow against the equity in your home
D) To pay off car loans
What does “refinancing” mean in terms of loans?
A) Taking out a new loan to replace an existing loan, typically with better terms
B) Changing the loan’s payment schedule
C) Transferring the loan to a different lender without changing the terms
D) Increasing the loan amount
What is one way to improve your credit utilization ratio?
A) Increase your debt
B) Decrease your credit card balances
C) Apply for more credit cards
D) Close unused credit accounts
What is the function of a cosigner on a loan?
A) To act as the primary borrower
B) To reduce the interest rate
C) To guarantee the loan repayment if the primary borrower defaults
D) To make payments on behalf of the borrower
What happens if you consistently make only the minimum payment on your credit card?
A) Your credit score will increase
B) You will pay off the balance in full within a few months
C) You will pay much more in interest over time
D) Your balance will be forgiven after a certain period
How do credit card companies typically determine your credit limit?
A) Based on your income and credit history
B) Based on your total assets
C) Based on how much debt you currently owe
D) Based on your monthly expenses
Which of the following is true about credit card rewards programs?
A) All rewards programs have the same terms
B) Rewards can include points, cash back, or travel perks
C) Rewards are only available to those with excellent credit scores
D) Rewards programs require no annual fees
What is a major disadvantage of using credit cards irresponsibly?
A) A positive credit score
B) Increased credit card rewards
C) Higher interest rates and potential debt accumulation
D) Increased available credit
Which of the following is the best way to build credit history if you are new to credit?
A) Apply for multiple credit cards at once
B) Use a secured credit card responsibly
C) Avoid using credit cards altogether
D) Take out a large loan immediately
What is an advantage of having a fixed-rate mortgage?
A) Lower initial monthly payments
B) It protects against rising interest rates
C) It is a short-term loan
D) It is usually more expensive than an adjustable-rate mortgage
What is the main disadvantage of adjustable-rate mortgages (ARMs)?
A) They offer fixed interest rates for the duration of the loan
B) They have higher initial interest rates
C) The interest rate can increase over time, leading to higher payments
D) They require higher down payments
What is a key feature of a payday loan?
A) Long repayment terms
B) High interest rates and fees
C) Low borrowing limits
D) No credit check required
Which type of loan typically has the longest repayment period?
A) Personal loan
B) Auto loan
C) Mortgage loan
D) Payday loan
How does a variable-rate loan differ from a fixed-rate loan?
A) The interest rate remains the same throughout the term of the loan
B) The interest rate changes periodically based on market conditions
C) The principal balance is fixed for the entire term
D) The loan is only available to individuals with high credit scores
Which of the following is the best strategy for building a strong credit history?
A) Only applying for credit when necessary
B) Maxing out credit cards to improve your credit score
C) Closing unused credit accounts regularly
D) Making timely payments on all debt obligations
What is a credit utilization ratio?
A) The amount of credit you use compared to your total credit limit
B) The amount of interest you pay on your loans
C) The total number of credit accounts you have
D) The number of inquiries made into your credit history
Which of the following is an example of unsecured credit?
A) Auto loan
B) Mortgage loan
C) Credit card
D) Home equity loan
What is a common reason for a credit card application to be denied?
A) A lack of recent purchases on the card
B) Having too many open credit accounts
C) A strong credit history
D) A high credit score
Which of the following is true about credit card interest rates?
A) Interest rates are typically lower for cash advances than purchases
B) Interest rates are the same for all credit card companies
C) Credit card interest rates are usually higher than mortgage interest rates
D) Interest rates never change once set
What is one way to avoid paying credit card interest?
A) Make payments only after receiving the statement
B) Pay off the full balance each month before the due date
C) Use the card only for large purchases
D) Withdraw cash advances from the card
What is the term for a loan that requires collateral, such as a house or car?
A) Secured loan
B) Unsecured loan
C) Revolving credit
D) Consolidation loan
Which of the following would likely have the lowest interest rate?
A) Payday loan
B) Personal loan
C) Auto loan
D) Credit card
How does a balance transfer credit card work?
A) It consolidates debt from several credit cards onto a single card with a lower interest rate
B) It allows you to transfer credit from one bank account to another
C) It automatically pays off your credit card balances each month
D) It increases your credit card limit to help pay off other debts
What does the term “credit limit” refer to?
A) The total amount of credit you have used
B) The maximum amount you can borrow on a credit card or loan
C) The total amount of your available cash balance
D) The fee charged for using your credit card
What is an example of a loan with a short repayment period?
A) Mortgage loan
B) Student loan
C) Payday loan
D) Car loan
Which factor is NOT typically used to determine your credit score?
A) Payment history
B) Credit utilization ratio
C) Income level
D) Length of credit history
How does paying only the minimum payment on a credit card affect your balance?
A) It ensures the debt is paid off quickly
B) It may result in paying off the balance in full within the first year
C) It prolongs the repayment period and results in paying more interest
D) It reduces your available credit limit
What is a common consequence of missing a payment on a loan or credit card?
A) You will receive a refund for the missed payment
B) Your credit score may drop and you may incur late fees
C) Your loan term will automatically extend
D) Your credit utilization ratio will improve
How can you improve your credit score over time?
A) Pay off your credit card balance in full each month
B) Close old credit accounts to improve your score
C) Use credit cards for large purchases only
D) Take out more loans to increase your credit history
What is the main advantage of using a secured credit card?
A) It requires no credit check
B) It builds or improves credit if used responsibly
C) It allows you to borrow larger amounts of money
D) It does not have any fees or interest
What is the first step to take if you discover an error on your credit report?
A) Close your credit accounts
B) File a dispute with the credit bureau reporting the error
C) Pay the debt immediately
D) Ignore it if the error is small
What does it mean to “consolidate” debt?
A) To take out new loans to pay off old debt
B) To increase your credit card limits
C) To pay off all debt early
D) To transfer all debt to a new credit card without interest
How can an adjustable-rate mortgage (ARM) affect your monthly payments?
A) The payments will decrease over time
B) The payments will stay the same throughout the loan term
C) The payments could increase if interest rates rise
D) The payments will be fixed for the first five years
What is one disadvantage of using a credit card for purchases?
A) No rewards points are earned
B) Interest charges can accumulate if the balance is not paid in full
C) The credit card company will charge a penalty for using it
D) It automatically improves your credit score
What does it mean to “default” on a loan?
A) You have paid off the loan in full
B) You have failed to make the required payments
C) You have refinanced the loan
D) You have increased your credit limit
What is the primary risk of taking out a loan with a co-signer?
A) You may not receive the loan
B) The co-signer is responsible for repaying the loan if you default
C) Your credit score will not improve
D) The loan will have higher interest rates
What is an example of a revolving credit account?
A) Mortgage
B) Car loan
C) Credit card
D) Payday loan
What is a common feature of fixed-rate loans?
A) The interest rate changes based on the market
B) The monthly payment remains the same throughout the loan term
C) The principal balance decreases quickly
D) The loan term is typically short
What type of loan typically has the shortest repayment period?
A) Student loan
B) Payday loan
C) Home equity loan
D) Mortgage loan
What is one way to avoid late fees on a credit card?
A) Pay only the minimum payment each month
B) Set up automatic payments to ensure payments are made on time
C) Delay payments until the end of the billing cycle
D) Apply for a new credit card with no fees
What is the typical consequence of exceeding your credit card limit?
A) You may receive a refund for the excess amount
B) Your credit score will automatically improve
C) You may incur an over-limit fee and your credit score could drop
D) The credit card company will decrease your interest rate
Which of the following would most likely help increase your credit score?
A) Maxing out your credit cards
B) Missing a credit card payment
C) Paying bills on time and maintaining low credit utilization
D) Closing unused credit card accounts
What is the function of a co-signer on a loan?
A) To receive the loan proceeds
B) To guarantee the loan if the primary borrower defaults
C) To increase the loan’s interest rate
D) To lower the loan’s principal balance
Which type of loan is typically used to finance the purchase of a home?
A) Personal loan
B) Mortgage loan
C) Payday loan
D) Student loan
What does a credit report contain?
A) The total number of credit cards you own
B) Detailed information about your credit history and current debts
C) Your bank account balances
D) The number of loans you have applied for in the past
Which of the following is a benefit of having a higher credit score?
A) Lower interest rates on loans and credit cards
B) Higher monthly payments on loans
C) Higher down payments required for loans
D) Higher credit limits with no fees
What is the term for the amount you borrow when taking out a loan?
A) Principal
B) Interest
C) Term
D) Collateral
How is the interest rate for most mortgages determined?
A) By the Federal Reserve rate only
B) By the lender’s discretion based on your credit score and loan term
C) By your monthly payment
D) By the loan’s principal amount
Which is the most responsible way to use a credit card?
A) Making only the minimum payment every month
B) Using credit cards for all your purchases, even non-essential ones
C) Paying the full balance on time each month to avoid interest
D) Paying your bill late to avoid fees
What is the main disadvantage of taking out a payday loan?
A) Low interest rates
B) Flexible repayment terms
C) High interest rates and fees
D) Requires excellent credit
What is a home equity loan typically secured by?
A) The borrower’s car
B) The borrower’s home
C) The borrower’s savings account
D) The borrower’s future salary
Which of the following is NOT a factor in determining your credit score?
A) Payment history
B) Credit utilization
C) Income level
D) Length of credit history
What does the annual percentage rate (APR) of a loan represent?
A) The total loan amount borrowed
B) The interest rate plus any additional fees expressed as a yearly rate
C) The amount of the principal borrowed
D) The total length of the loan term
What does it mean to refinance a loan?
A) To apply for a second loan while the first is still active
B) To change the terms or interest rate of an existing loan
C) To pay off a loan early
D) To transfer a loan from one lender to another without changing the terms
Which of the following is the best way to manage credit card debt?
A) Only pay the minimum payment to keep your credit score high
B) Consolidate all debt into one loan with a lower interest rate
C) Ignore high-interest balances until they are fully charged
D) Close all credit accounts to avoid using credit
What is an example of an installment loan?
A) Credit card
B) Mortgage
C) Payday loan
D) Line of credit
What happens if you default on a loan?
A) The loan will be forgiven
B) The lender may take legal action to recover the amount owed
C) Your credit score will remain unaffected
D) Your loan term will automatically extend
What is the benefit of making more than the minimum payment on a credit card?
A) It lowers the interest rate
B) It reduces your balance faster and saves you money on interest
C) It eliminates the need to make future payments
D) It automatically improves your credit score
How can a person lower their credit card interest rate?
A) Increase the credit limit
B) Apply for a different credit card with lower rates
C) Make only the minimum payments
D) Request a reduction in the rate from the credit card issuer
What does a credit freeze do?
A) It stops you from using credit for purchases
B) It temporarily prevents potential creditors from accessing your credit report
C) It improves your credit score
D) It closes your credit accounts
How does a balance transfer credit card help with managing debt?
A) It consolidates debt from different credit cards onto one card with lower interest
B) It automatically pays off your debt for you
C) It offers a long-term zero-interest rate on all purchases
D) It allows you to borrow money for non-essential purchases
Which of the following should you do before applying for a mortgage?
A) Cancel all existing credit cards
B) Shop around for the best mortgage rates and terms
C) Increase your monthly spending to improve your credit history
D) Max out your credit card limits to raise your credit score
What is the primary purpose of a credit card’s grace period?
A) To allow for late payments without penalties
B) To offer an interest-free period if the balance is paid in full
C) To apply fees for not using the card
D) To increase the card’s limit
How can a borrower reduce the monthly payment on a loan?
A) By taking out a larger loan
B) By extending the loan term (e.g., switching from 10 years to 15 years)
C) By reducing their credit score
D) By paying the loan off early
What type of loan is typically used for education expenses?
A) Personal loan
B) Student loan
C) Auto loan
D) Home equity loan
What does it mean when a loan is “secured”?
A) The borrower must have a high credit score to qualify
B) The loan is protected by an asset, such as property or a vehicle
C) The loan is granted without any collateral
D) The loan requires no repayment schedule
How often is your credit report updated?
A) Once a year
B) Every month
C) Every week
D) Every time you make a payment
Which of the following is a benefit of consolidating high-interest credit card debt into a personal loan?
A) It will lower your monthly payments and reduce interest charges
B) It will remove the debt from your credit report
C) It allows you to access additional credit
D) It will increase your available credit limit
What is a good credit utilization ratio to aim for?
A) 50%
B) 30%
C) 60%
D) 10%
Which of the following can negatively impact your credit score?
A) Paying your credit card bill in full every month
B) Closing unused credit cards
C) Applying for a new credit card
D) Keeping credit utilization under 30%
What is the typical advantage of an auto loan over a personal loan?
A) Auto loans generally have higher interest rates
B) Auto loans are unsecured, so no collateral is required
C) Auto loans usually offer lower interest rates when secured by the car
D) Auto loans are harder to obtain
How can you protect yourself from credit card fraud?
A) Share your credit card information with trusted friends
B) Regularly monitor your credit card statements for unauthorized charges
C) Use the same PIN for all your credit cards
D) Always use public Wi-Fi to make purchases online
What is a revolving credit account?
A) A loan with a fixed repayment schedule
B) A credit card where you can borrow up to a certain limit and pay it off in full or over time
C) A student loan with flexible payment terms
D) A mortgage where the payment amount never changes
What is one of the main benefits of using a credit card for purchases?
A) You avoid paying interest if you carry a balance
B) You earn rewards or cashback for spending
C) You don’t need to worry about paying back the amount you borrow
D) Your credit score automatically improves when using a credit card
What is an unsecured loan?
A) A loan that requires the borrower to pledge collateral
B) A loan where the borrower’s creditworthiness is the only consideration
C) A loan where the borrower can pay in cash instead of using credit
D) A loan for purchasing real estate
What should you do if you are unable to make a credit card payment on time?
A) Ignore the payment and hope the issue resolves itself
B) Contact the credit card issuer to request an extension or arrangement
C) Only make a partial payment to avoid late fees
D) Immediately close the account
What does it mean to “pay off” your credit card balance?
A) Pay the minimum payment only
B) Pay the entire balance, including interest and fees
C) Make monthly payments without ever finishing the balance
D) Pay part of the balance and transfer the rest to another card
What is the main disadvantage of a payday loan?
A) The loan terms are usually very flexible
B) The interest rates are often extremely high
C) You can easily extend the loan term
D) There are no fees associated with payday loans
How long can negative information, such as missed payments, stay on your credit report?
A) 1 year
B) 3 years
C) 7 years
D) 10 years
What is a fixed-rate mortgage?
A) A mortgage where the interest rate changes based on market conditions
B) A mortgage where the interest rate remains the same for the entire term of the loan
C) A mortgage that only requires interest payments
D) A mortgage with a variable repayment schedule
What is a key advantage of having a co-signer for a loan?
A) It reduces the interest rate
B) It increases the loan’s principal
C) It ensures the loan is repaid if the primary borrower defaults
D) It eliminates all loan fees
How can paying off a credit card bill on time help you?
A) It improves your credit score and saves you money on interest
B) It automatically lowers your credit card limit
C) It eliminates your debt entirely
D) It removes late payment history from your credit report
What is the term for the maximum amount a credit card issuer will allow you to borrow?
A) Credit limit
B) Annual fee
C) Interest rate
D) Grace period
What is an advantage of using a credit card over a debit card?
A) Credit cards are easier to lose
B) Credit cards provide cash rewards and purchase protection
C) Credit cards are only accepted at specific locations
D) Debit cards charge higher interest rates
What does an introductory 0% APR offer on a credit card usually apply to?
A) All purchases
B) Only cash advances
C) Only balance transfers
D) Both purchases and balance transfers for a limited period
Which of the following would be considered a responsible action when applying for a loan?
A) Borrowing more than you can afford to pay back
B) Reading the loan agreement thoroughly and understanding the terms
C) Choosing a loan based solely on the lowest monthly payment
D) Ignoring your credit score to avoid checking your history
What is the best strategy for paying off credit card debt?
A) Paying only the minimum payment
B) Transferring the balance to another credit card to get a lower rate
C) Ignoring the debt until interest rates go down
D) Borrowing more money to pay off the balance
What is the effect of defaulting on a loan?
A) It increases your credit score
B) It lowers your credit score and may lead to legal action
C) It guarantees loan forgiveness
D) It automatically lowers your interest rate
What should you do if your credit card is lost or stolen?
A) Wait until your next statement arrives to report it
B) Contact the credit card issuer immediately to report the loss
C) Use the card for purchases until the issuer cancels it
D) Continue to make payments on the card until the issue is resolved
What is the purpose of a credit inquiry when applying for a loan?
A) To check the borrower’s creditworthiness
B) To assess the loan amount needed
C) To verify the borrower’s income
D) To provide the borrower with loan options
Which of the following is NOT a reason for a low credit score?
A) Late payments on loans and credit cards
B) High credit utilization ratio
C) Having no credit cards or loans
D) Paying bills on time and in full
Which of the following is an example of a secured loan?
A) Payday loan
B) Auto loan
C) Personal loan
D) Student loan
What is a key disadvantage of using a credit card for everyday purchases?
A) You can earn rewards points
B) Interest charges can accrue if you carry a balance
C) You can delay payments indefinitely
D) It improves your credit score instantly
What is the primary factor that lenders use to determine your loan eligibility?
A) The color of your house
B) Your credit score
C) Your social media presence
D) Your family’s financial history
What is a typical feature of a mortgage with an adjustable rate?
A) The interest rate remains the same for the entire term
B) The interest rate fluctuates based on market conditions
C) The loan amount can be changed during the term
D) No down payment is required
What does “APR” stand for in relation to credit cards and loans?
A) Annual Percentage Rate
B) Application Processing Rate
C) Average Payment Return
D) Annual Principal Rate
Which of the following can negatively affect your credit score?
A) Paying off credit card debt in full
B) Missing multiple credit card payments
C) Keeping your credit utilization below 30%
D) Reducing your total debt
What is a benefit of consolidating multiple loans into one loan?
A) You can avoid paying interest
B) You may lower your monthly payments by extending the loan term
C) You can reduce your total debt
D) The loan term will automatically shorten
What does the term “credit limit” refer to?
A) The maximum balance a borrower can have on a credit card
B) The minimum payment amount due each month
C) The total interest paid on a loan
D) The total fees charged by a credit card issuer
What is the “grace period” for a credit card?
A) The period during which you can borrow more money without interest
B) The period after the due date when late fees are not charged
C) The period after a purchase when no interest is charged if paid in full
D) The period when you can change your interest rate
What is the primary disadvantage of a payday loan?
A) It offers low interest rates
B) It has extremely high-interest rates and short repayment periods
C) It has a long repayment term
D) It requires a down payment
What is a good strategy to improve your credit score over time?
A) Use only cash for all purchases
B) Open several new credit accounts to build your credit
C) Pay bills on time, maintain low credit card balances, and avoid opening unnecessary new credit lines
D) Keep a credit card with a large balance open without using it
What is the advantage of paying more than the minimum payment on a credit card?
A) It will increase your credit score immediately
B) It helps reduce the interest charges and pay off the balance faster
C) It increases your credit limit
D) It eliminates the need for making future payments
How can you avoid paying interest on a credit card?
A) Only make the minimum payment each month
B) Carry a balance every month
C) Pay your balance in full before the due date
D) Use the card only for small purchases
What is the main disadvantage of borrowing from a payday lender?
A) The loan can be repaid over several years
B) The loan amount is flexible based on the borrower’s needs
C) The fees and interest rates are typically very high
D) The loan requires no repayment
What is a common way to rebuild credit after financial hardship?
A) Opening multiple new credit cards
B) Paying bills on time and keeping credit card balances low
C) Closing old credit accounts
D) Ignoring any negative marks on your credit report
Which type of loan typically has the lowest interest rates?
A) Payday loans
B) Personal loans
C) Auto loans
D) Credit card loans
Which of the following does NOT help in building a strong credit score?
A) Keeping credit utilization below 30%
B) Frequently applying for new credit cards
C) Paying bills on time
D) Maintaining a long credit history
What does “debt-to-income ratio” measure?
A) The total amount of debt relative to your income
B) The interest rate of a loan compared to the principal
C) The total assets you own versus your liabilities
D) The length of time it takes to pay off debt
What is the key feature of a fixed-rate mortgage?
A) The interest rate fluctuates based on market conditions
B) The interest rate remains the same throughout the life of the loan
C) It allows you to pay off the loan at any time without penalties
D) The principal balance increases over time
Which of the following is typically a disadvantage of using a credit card for a large purchase?
A) You can delay payment indefinitely
B) Interest rates can quickly add up if the balance is not paid in full
C) You can avoid all fees
D) The credit card issuer pays for the purchase
What does it mean to have a “good” credit score?
A) It means you have no outstanding loans
B) It means you can borrow unlimited amounts of money
C) It means you are considered a low-risk borrower by lenders
D) It means you have no credit cards
What is a common term used for a loan with no collateral?
A) Secured loan
B) Unsecured loan
C) Mortgage loan
D) Payday loan
What type of loan would typically have the highest interest rate?
A) Personal loan
B) Auto loan
C) Mortgage loan
D) Payday loan
What should you consider before cosigning for a loan?
A) The person you are cosigning for has excellent credit
B) You are responsible for the loan if the borrower defaults
C) You will receive credit rewards for cosigning
D) The loan will never appear on your credit report
What is the purpose of credit counseling services?
A) To provide financial loans to those in need
B) To help individuals manage debt and improve credit
C) To offer credit cards with no fees
D) To increase a borrower’s credit score automatically