Managing Credit Flashcard

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What is a credit score and why is it important?

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A credit score is a numerical representation of a person's creditworthiness, based on their credit history. It is important because it affects the ability to obtain loans, credit cards, and favorable interest rates.

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What are the five categories that make up a credit score?

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The five categories are: 1) Payment history (35%), 2) Credit utilization (30%), 3) Length of credit history (15%), 4) Types of credit used (10%), 5) New credit inquiries (10%).

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What does 'payment history' refer to in the context of a credit score?

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Payment history refers to whether a person has paid their past and current credit accounts on time. It is the most significant factor in determining a credit score.

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What is the snowball method in debt repayment?

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The snowball method is a debt repayment strategy where a person pays off debts starting with the smallest balance first, gaining momentum as each debt is eliminated.

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What is the recommended credit utilization percentage to maintain a good credit score?

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It is recommended to keep credit utilization under 30% of the total available credit.

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What is a credit report?

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A credit report is a detailed report of an individual's credit history, including information about past and current credit accounts, payment history, and any bankruptcies or foreclosures.

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True or False: Most Americans have large amounts of money in their savings accounts and hardly any debt.

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False. Many Americans carry significant debt and have limited savings.

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CCSS.L.5.3B

CCSS.L.6.1E

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How does credit utilization affect your credit score?

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Credit utilization affects your credit score by showing how much of your available credit you are using. High utilization can lower your score, while low utilization can improve it.

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What factors can negatively impact your credit score?

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Factors that can negatively impact your credit score include late payments, high credit utilization, having too many new credit inquiries, and having a short credit history.

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What is the difference between a hard inquiry and a soft inquiry?

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A hard inquiry occurs when a lender checks your credit for lending purposes, which can affect your score. A soft inquiry occurs when you check your own credit or when a lender checks your credit for pre-approval, which does not affect your score.