#1
Which of the following is a common type of credit?
Credit card
ExplanationCommon form of borrowing with revolving credit.
#2
What is the purpose of a credit score?
To determine eligibility for loans and credit cards
ExplanationAssesses creditworthiness for borrowing.
#3
What is the consequence of missing a credit card payment?
Late fees and interest charges
ExplanationIncurs financial penalties and damages credit.
#4
What is the meaning of APR in credit terms?
Annual Percentage Rate
ExplanationReflects yearly cost of borrowing.
#5
What is the role of a cosigner in a credit agreement?
To guarantee repayment if the borrower defaults
ExplanationAssumes responsibility if primary borrower fails to pay.
#6
Which of the following is NOT a major credit reporting bureau in the United States?
FICO
ExplanationFICO provides credit scoring, not credit reports.
#7
Which of the following is a factor affecting creditworthiness?
Income level
ExplanationHigher income often correlates with better credit.
#8
What is the purpose of a credit utilization ratio?
To evaluate how much of a person's available credit they are using
ExplanationIndicates responsible use of available credit.
#9
Which of the following actions can help improve a credit score?
Making timely payments
ExplanationDemonstrates responsible credit behavior.
#10
What does 'secured credit' refer to?
Credit backed by collateral
ExplanationCollateral reduces risk for lenders.
#11
What does 'credit utilization ratio' refer to?
The ratio of available credit to total credit limits
ExplanationIndicates how much credit is being used.
#12
What is the purpose of a debt-to-income ratio?
To assess a person's ability to repay debt
ExplanationEvaluates financial health and borrowing capacity.
#13
What is the role of a credit report in credit management?
To provide a record of a person's credit history
ExplanationSummarizes credit accounts and payment history.
#14
What is the difference between a soft inquiry and a hard inquiry on a credit report?
Soft inquiries do not affect credit scores, while hard inquiries do
ExplanationSoft checks for personal use, hard checks for lending decisions.
#15
What is the significance of a 'charge-off' on a credit report?
It implies that the debt is unlikely to be repaid
ExplanationLender writes off the debt as uncollectible.
#16
What is the purpose of a credit freeze?
To prevent unauthorized access to credit reports
ExplanationBlocks access to credit information, reducing fraud risk.
#17
What is the purpose of a credit monitoring service?
To track changes in credit reports and alert individuals to potential fraud or identity theft
ExplanationMonitors credit activity and flags suspicious behavior.