Managing Credit

Front

All of the following would show up on your credit report EXCEPT: student loan activity, credit card payment history, payment history of your car loan, salary of your current job

Back

salary of your current job

Answer explanation

Your credit report is a reflection of how responsible you are with using credit. Something pertaining to your job, such as a salary, will not appear in your credit report. If you are applying for a mortgage, they might do an income check to see how much you make, but that is separate from a credit inquiry, or a review of your credit report.

Front

Your friend confides in you that he has a low credit score. What is the single best way for him to improve his score?

Back

make on-time payments

Answer explanation

That's the best place to start. Continue to make payments on time and your debt will go lower. This is addresses the two biggest components of your credit score, which are payment history and amount of debt you owe.

Front

Melvin is 19 years old and wants to begin establishing a credit history. Which action should he take to meet that goal? Options: Always say "credit" when asked "credit or debit?" at a store; Any time he borrows money from a friend or family member, be sure to pay it back promptly; Ask his parents to cosign a credit card or add him as an authorized user on their credit card; Take out some private student loans, even though he doesn't need them because he has grants and scholarships.

Back

Ask his parents to cosign a credit card or add him as an authorized user on their credit card.

Answer explanation

This is a great way to build credit if you don't have much of a credit history. It allows you to use credit at a lower interest rate than you would otherwise get since the person you are co-signing with likely has a strong credit score.

Front

How can debt increase a person’s net worth? Options: The more debt you take on, the higher your credit score; Debt allows you to buy valuable assets, like a house; Using debt, you can spend more than you earn; Debt increases your liabilities, like your credit card balance.

Back

Debt allows you to buy valuable assets, like a house

Answer explanation

There's good debt and there is bad debt. A mortgage, or a loan on a house, is good debt since the house can be an asset that appreciates, or increases, in value over time. An example of bad debt is using your credit card to pay for something that is non-durable. That is because you are still paying it off long after you have used it.

Front

Who tracks all of your credit information?

Back

Credit reporting agencies (Equifax, Experian and TransUnion)

Answer explanation

You have three credit scores because there are three credit reporting agencies. Remember, you are entitled to a free credit report each year. You should occasionally check your credit history to make sure everything is accurate.

Front

Which best describes the Debt Snowball method for paying off debt?

Back

Make the monthly minimum payments on all your debts, and then put any extra cash toward the debt with the lowest balance.

Answer explanation

The Debt Snowball method of paying off debt allows you to pay down the smallest balances faster. Each time you pay off a debt, you apply the payment from that debt to paying off the next lowest balance.

Front

What benefits do you receive by taking out a loan with a cosigner?

Back

You have a better chance of getting approved and getting a lower interest rate if the cosigner has good credit.

Answer explanation

This can be especially helpful for something like an auto loan. A lower interest rate on the loan can save you thousands in total interest, which makes this option attractive for younger borrowers who have a limited credit history.

Front

You're paying your credit card bill and your student loan payment each month, but you're falling behind on your auto loan payment. Which friend's advice could have a NEGATIVE impact on your credit score? Options: Debbie says, "Stop making the credit card payment for a few months until you're caught up on the auto loan." Joanie says, "Call the auto lender and see if you can negotiate a lower monthly payment or some other deal." Angie says, "Pick up a second job for as long as it takes to accumulate enough money to make all your payments, even if it means losing time with friends and family." Betty says, "Cut down to a bare bones budget, where your necessities and your debt repayments take first priority. Cut everything non-essential."

Back

Debbie says, "Stop making the credit card payment for a few months until you're caught up on the auto loan."

Answer explanation

Never skip payments if you can help it. Not only will this lower your credit score, but delinquent, or excessively late, payments can remain on your credit report for up to 8 years. Always make the minimum payment on-time.

Front

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

Back

30%

Answer explanation

When your credit utilization rate goes well above 30%, this is a sign that you are using credit but having a difficult time paying it off.

Front

Why is it a bad idea to spend up to your full credit limit?

Back

It leaves no room for emergencies and increases your debt risk.

Answer explanation

When you spend your full credit limit, you probably won't be able to pay off the full balance, which means that high interest will kick in and it could take a long time to pay off that debt. Also, you can't spend over your limit, so many people who do this have to apply for another credit card. This increases your debt even more and prolongs the amount of time it will take for you to be debt-free with credit cards.