05 Credit Outcome Review- Managing types of credit

To build a good credit history, you should

• open as much credit as possible quickly
• use the maximum credit allowed on all your credit cards
• pay on time and as much of your balance as possible
• all of these

Hannah is determined to eliminate her debt quickly as it is affecting her financial stability. Which of the following actions would NOT be advisable for her to take?

• Cutting down on dining out to save more money

• Selling unused items to generate extra cash

• Setting up automatic payments to avoid late fees

• Applying for another credit card in case she runs out of cash

Arun has multiple sources of debt and wants to pay the lowest amount of interest over time. What strategy should he use?

• Snowball method

• Make minimum payments

• High rate method

• Consolidate multiple debts into one new loan

What is the primary focus of the Debt Snowball method when managing multiple debts?

• Consolidate all debts into one payment to simplify the process

• Pay off the debt with the highest interest rate first to save on interest

• Concentrate on paying off the smallest debt first while making minimum payments on others

What is one possible outcome of failing to repay your federal student loans?

• Your wages can be garnished

• You could be denied a mortgage

• You might lose your health insurance

• Your car could be repossessed

Why is it advantageous to start building your credit history early in life?

• Older individuals are not allowed to apply for credit cards

• Young people can get loans with no interest

• A strong credit history can help you secure better loan terms in the future (car, credit card, mortgage)

• Credit scores are automatically higher for those under 30

Why might it be beneficial to make additional payments on a fixed-rate mortgage?

• It increases the overall interest you pay, but shortens the loan term

• Extra payments reduce the principal balance, leading to less interest paid over time

If you're struggling to keep up with your car loan payments and need to stick to a strict budget, which of the following suggestions is the least advisable?

• Seek additional income by getting a part-time job, working overtime, or asking for help from family if they are able to assist

• Ignore some of your debt payments to concentrate on managing the most costly or largest debts

• Maintain all payments and contact your creditors to negotiate for reduced monthly payments, lower interest rates, or extended terms

You and your roommate are considering signing up for a subscription service that requires a credit check. Your roommate is unable to qualify due to their credit score and asks you to put the account in your name, assuring you that they will cover the monthly payments.

What risks might you face if you agree to this arrangement?

What alternative solutions could you recommend to your roommate?

Answer explanation

Nora is planning to buy a new car and wants to ensure she gets the best financing deal possible. An excellent credit score will help her with which aspect of car financing?

• Bargaining for a great sales price

• Receiving a large down payment

• Qualifying for a low interest rate

• Having a wide selection of term lengths