#1
Which of the following best defines credit management?
Minimizing debt
ExplanationCredit management involves minimizing debt to maintain financial health.
#2
What is the purpose of a credit limit?
To limit the amount of debt a borrower can accumulate
ExplanationIt imposes a cap on the maximum debt a borrower can incur.
#3
What is the purpose of a credit score?
To assess a person's credit risk
ExplanationIt evaluates the likelihood of an individual defaulting on credit.
#4
What does APR stand for in the context of credit?
Annual Percentage Rate
ExplanationAPR represents the annual cost of borrowing, including interest and fees.
#5
What is the consequence of failing to make timely credit card payments?
Late payment fees and negative impact on credit score
ExplanationLate payments incur fees and harm credit scores, affecting future borrowing.
#6
What does the debt-to-income ratio measure?
The percentage of income used to pay debts
ExplanationIt assesses the proportion of income allocated to debt repayment.
#7
What does 'debt consolidation' refer to in credit management?
Combining multiple debts into a single loan or payment
ExplanationDebt consolidation involves merging debts for simplified repayment.
#8
What is a 'credit utilization ratio'?
The amount of credit used compared to the total available credit
ExplanationIt gauges the extent of credit usage relative to the total available.
#9
What is the role of a co-signer in credit arrangements?
To share responsibility for the debt
ExplanationA co-signer assumes joint liability for the debt repayment.
#10
What is the purpose of a credit report?
To provide a record of a person's credit history
ExplanationIt furnishes a comprehensive record of an individual's credit activities.