#1
Which of the following is a form of consumer credit?
Student loans
ExplanationA form of credit extended to consumers for educational expenses.
#2
What does APR stand for in the context of credit?
Annual Percentage Rate
ExplanationThe annualized cost of credit expressed as a percentage, incorporating both interest and fees.
#3
What is the purpose of a credit counseling service?
To provide education and assistance with managing debt
ExplanationServices offering guidance and education to individuals for effective debt management.
#4
What is the main purpose of a credit score?
To evaluate an individual's creditworthiness
ExplanationA numerical representation used by lenders to assess a person's creditworthiness.
#5
What is the term for the maximum amount of credit extended to a borrower?
Credit limit
ExplanationThe highest amount a borrower is allowed to borrow from a lender.
#6
What does it mean to 'default' on a loan?
To fail to repay a loan according to the terms agreed upon
ExplanationFailure to meet the agreed-upon terms of a loan repayment.
#7
What is the recommended debt-to-income ratio for healthy financial management?
30%
ExplanationA guideline indicating that 30% of one's income should be allocated towards debt payments for financial stability.
#8
Which type of bankruptcy involves liquidating assets to repay debts?
Chapter 7
ExplanationA bankruptcy process where a debtor's assets are sold to repay creditors, providing a fresh start for the individual.
#9
What is the 'snowball method' in debt repayment?
Paying off the smallest debts first and then moving on to larger ones
ExplanationA debt repayment strategy focusing on clearing smaller debts first to build momentum for tackling larger ones.
#10
Which of the following is not a factor affecting credit scores?
Marital status
ExplanationMarital status is typically not considered in calculating credit scores.
#11
Which federal law gives consumers the right to see their credit reports for free once a year?
Fair Credit Reporting Act (FCRA)
ExplanationLegislation granting consumers the right to access their credit reports annually without charge.
#12
Which of the following is a potential consequence of defaulting on a loan?
Legal action by the lender
ExplanationFailure to repay a loan may lead to legal actions taken by the lender.
#13
What is a 'balance transfer' in the context of credit cards?
Transferring an outstanding balance from one credit card to another with lower interest rates
ExplanationA process of moving a credit card balance to another card, often with a lower interest rate.