#1
What does APR stand for in the context of credit management?
Annual Percentage Rate
ExplanationIt represents the yearly cost of borrowing, including interest and fees.
#2
Which of the following is not a factor affecting credit score?
Ethnicity
ExplanationCredit scores are determined based on financial behavior, not ethnicity.
#3
What does the term 'delinquency' refer to in credit management?
Failure to make payments on time
ExplanationIt indicates late or missed payments, negatively affecting credit.
#4
What is the primary purpose of a credit report?
To assess creditworthiness
ExplanationIt provides information used by lenders to evaluate the risk of extending credit.
#5
What is the purpose of a credit limit?
To limit the amount of credit available to a borrower
ExplanationIt prevents borrowers from overspending and protects lenders from excessive risk.
#6
What is the purpose of a debt-to-income ratio (DTI)?
To assess an individual's ability to pay off debts
ExplanationIt measures the proportion of debt relative to income, indicating financial health.
#7
Which of the following statements about secured loans is true?
Secured loans are less risky for lenders
ExplanationSecured loans involve collateral, reducing the lender's risk of loss.
#8
What does the term 'credit utilization ratio' refer to?
The amount of available credit being used
ExplanationIt measures the proportion of credit used to available credit, affecting credit score.
#9
Which of the following is NOT a credit reporting agency in the United States?
Standard & Poor's
ExplanationStandard & Poor's is a financial services company, not a credit reporting agency.
#10
What is the purpose of a FICO score?
To determine a borrower's credit risk
ExplanationFICO scores assess the likelihood of a borrower repaying debts on time.
#11
What is a 'charge-off' in the context of credit management?
A debt declared unlikely to be collected
ExplanationIt's when a creditor writes off a debt as uncollectible, impacting credit negatively.
#12
What is the significance of the 'grace period' on a credit card?
It is the period after the due date during which no interest is charged
ExplanationIt allows cardholders to pay their balance in full without accruing interest.