Understanding Credit and Debt Management Quiz

The length of your credit history impacts your credit score, with a longer history generally viewed more favorably.

A recommended debt-to-income ratio of 30% means that your total debt payments should not exceed 30% of your gross monthly income for good financial health.

The grace period on a credit card is the time during which no interest accrues on new purchases, providing a window for full payment without interest.

A disadvantage of credit cards is the risk of overspending, leading to the accumulation of debt that may be challenging to repay.

A good credit score often involves maintaining a low credit utilization ratio, indicating responsible use of available credit.

Defaulting on a loan means failing to repay it as agreed, leading to negative consequences such as damage to credit and potential legal actions.

Income level does not typically affect your credit score, as credit scoring focuses on credit-related factors.

Debt consolidation involves combining multiple debts into a single, more manageable loan, often with lower interest rates.

The snowball method involves prioritizing and paying off debts starting with the smallest balance first, gaining momentum as each debt is cleared.

APR, or Annual Percentage Rate, represents the total cost of borrowing on a credit card, including interest and fees, expressed as an annual percentage.

The Federal Reserve is not a credit reporting agency; credit bureaus like Experian, Equifax, and TransUnion fulfill this role.

A debit card is not a type of credit card; it is linked to a bank account and draws funds directly from it.

The minimum payment on a credit card statement is the lowest amount you must pay by the due date to avoid late fees, but paying only the minimum can lead to increased interest and long-term debt.

When a debt is 'charged off,' the lender considers it unlikely to be collected and writes it off as a loss, though the debtor remains obligated.

Secured debt is backed by collateral, providing security to the lender, while unsecured debt has no collateral backing.

The Debt-to-Equity ratio is a financial metric representing the proportion of a company's total debt to its total equity, indicating its leverage.

Charging off a debt means a lender considers it unlikely to be collected and cancels it as uncollectible, though the debtor is still responsible.

Chapter 20 is not a recognized type of bankruptcy; common types include Chapter 7 and Chapter 13.

The credit utilization ratio measures the percentage of your available credit that you're currently using, with a lower ratio generally viewed more favorably for credit scores.