Understanding Credit and its Applications Quiz

Credit score is a numerical measure indicating how likely a person is to repay borrowed money.

Income level is not directly considered when calculating a credit score.

Credit cards enable borrowing, while debit cards only use available funds from a bank account.

Credit limit is the maximum borrowing amount allowed on a credit card.

Closing a credit card may reduce available credit and impact credit score negatively.

APR represents the yearly cost of borrowing, including interest and fees, expressed as a percentage.

A secured credit card requires a cash deposit as collateral, reducing the risk for the card issuer.

Credit utilization ratio calculates the percentage of available credit currently being used.

Co-signing involves jointly taking a loan with another person, both sharing the responsibility for repayment.

Credit counseling services assist individuals in debt management and credit improvement.

DTI ratio assesses the proportion of an individual's income used to cover debt obligations.

Consumers are entitled to a free credit report from each major credit bureau annually.

FCRA safeguards consumer rights, ensuring accuracy and privacy in credit reports.

A credit freeze restricts unauthorized access, preventing new credit accounts without the individual's permission.

Debt consolidation loans combine multiple debts into one, often with a lower interest rate, simplifying repayment.