What is Credit? | Credit and Debt Management | Personal Finance

Question 1

Which of the following is NOT a direct component of a credit transaction?

Accepted Answer

Borrower's income

Answer

Loan amount

Answer

Interest rate

Answer

Credit limit

Question 2

How does using a lower percentage of your available credit affect your credit score?

Accepted Answer

It typically improves your credit score.

Answer

It does not affect your credit score.

Answer

It enhances your credit score.

Answer

It only matters if you have an outstanding balance.

Question 3

What is the primary factor that influences your credit score?

Accepted Answer

Payment history

Answer

Age

Answer

Income

Answer

Credit utilization

Question 4

Which of the following practices reflects responsible credit use?

Accepted Answer

Making timely bill payments

Answer

Utilizing credit only for emergencies

Answer

Borrowing beyond your repayment capacity

Answer

Financing expensive purchases without a repayment plan

Question 5

How do secured and unsecured credit differ?

Accepted Answer

Secured credit is backed by collateral, while unsecured credit is not.

Answer

Unsecured credit is backed by collateral, while secured credit is not.

Answer

There is no distinction between secured and unsecured credit.

Answer

Secured credit offers lower interest rates compared to unsecured credit.

Question 6

What is the purpose of a credit report?

Accepted Answer

To provide a record of your credit history and a credit score

Answer

To gather information about your income and assets

Answer

To determine your eligibility for a loan

Answer

To store your personal data

Question 7

How frequently is it recommended to review your credit report?

Accepted Answer

Every six months

Answer

Monthly

Answer

Annually

Answer

Only when applying for credit

Question 8

Is there a legal limit on interest rates for credit cards?

Accepted Answer

There is no legal limit

Answer

10%

Answer

15%

Answer

20%

Question 9

What is the primary difference between secured and unsecured credit?

Accepted Answer

Secured credit requires collateral, while unsecured credit does not.

Answer

Secured credit typically offers lower interest rates than unsecured credit.

Answer

Unsecured credit is generally more difficult to obtain than secured credit.

Answer

Secured and unsecured credit are identical in nature.

Question 10

Is borrowing money always unethical? Why or why not?

Accepted Answer

It depends on the situation. Some reasons for borrowing money are more ethical than others.

Answer

Yes, borrowing money is always wrong because it can lead to debt.

Answer

No, borrowing money is okay if you plan to pay it back.

Question 11

What is the defining characteristic of credit that sets it apart from other financial transactions?

Accepted Answer

Credit involves borrowing money or goods upfront and repaying the lender later.

Answer

Credit is a type of investment that earns money for the borrower.

Answer

Credit is only available to businesses, not individuals.

Answer

Credit always has a negative impact on a person's financial situation.

Question 12

Which statement BEST describes the key difference between a revolving credit account and an installment loan?

Accepted Answer

Revolving credit accounts let you borrow repeatedly up to a limit, while installment loans are repaid in set amounts over a specific time.

Answer

Both types of credit have fixed interest rates and payment due dates.

Answer

Installment loans usually have higher interest rates than revolving credit accounts.

Question 13

Which of the following is NOT a type of credit?

Accepted Answer

Debit card

Answer

Credit card

Answer

Mortgage

Answer

Personal loan

Question 14

What is the most important factor that determines your credit score?

Accepted Answer

Your payment history

Answer

Your income

Answer

Your age

Answer

Your credit utilization ratio

Question 15

What is the primary purpose of a credit report?

Accepted Answer

To provide a comprehensive summary of your credit accounts and history

Answer

To track your spending history

Answer

To predict your future credit behavior

Answer

To calculate your credit score

Question 16

What is the key difference between a credit card and a debit card?

Accepted Answer

Credit cards allow you to borrow money, while debit cards deduct money directly from your account

Answer

Debit cards offer rewards and points, while credit cards do not

Question 17

How does credit impact personal finance, considering both its advantages and disadvantages?

Accepted Answer

Credit can have positive or negative effects on personal finance, depending on how it's used.

Answer

Credit has no impact on personal finance.

Answer

Using credit is always beneficial.

Answer

Credit is mainly used for major purchases, like houses or cars.

Question 18

Which of the following is the most accurate definition of credit?

Accepted Answer

The ability to borrow money and repay it later

Answer

A loan secured by collateral

Answer

A measure of your financial trustworthiness

Answer

An investment that pays interest

Question 19

Which factor has the greatest influence on your credit score?

Accepted Answer

Payment history

Answer

Income

Answer

Age

Answer

Education

Question 20

Which type of credit does not require collateral?

Accepted Answer

Credit card

Answer

Mortgage

Answer

Auto loan

Answer

Student loan

Question 21

How do credit cards differ from debit cards?

Accepted Answer

Credit cards allow borrowing while debit cards do not

Answer

Debit cards allow borrowing while credit cards do not

Answer

Credit cards and debit cards are identical

Answer

Debit cards have higher interest rates than credit cards

Question 22

When faced with debt struggles, what is the recommended course of action?

Accepted Answer

Contacting creditors for payment arrangements

Answer

Ignoring the debt

Answer

Obtaining a loan to consolidate debt

Answer

Filing for bankruptcy

Question 23

What is the meaning of 'credit limit'?

Accepted Answer

The maximum borrowing amount on a credit card

Answer

The amount of interest charged on a loan

Answer

The time frame for repaying a debt

Answer

The number of monthly credit card transactions

Question 24

Your credit score is low due to late payments. Which action will most effectively raise your score?

Accepted Answer

Make all future payments on time

Answer

Get a new credit card

Answer

Raise credit limits on current cards

Answer

Consolidate debts into a single loan

Question 25

The main purpose of a credit score is to:

Accepted Answer

Determine your eligibility for credit

Answer

Assess your overall financial health

Answer

Predict your future earning potential

Answer

Determine your car insurance premiums

Question 26

Which credit bureau is excluded from the calculation of FICO scores?

Accepted Answer

Wells Fargo

Answer

Equifax

Answer

Experian

Answer

TransUnion

Question 27

Which factor typically lowers credit scores?

Accepted Answer

High credit utilization ratio

Answer

Regular on-time payments

Answer

Low credit limits

Answer

Long credit history

Question 28

Which of the following is NOT an indication of identity theft?

Accepted Answer

Improved credit scores

Answer

Unauthorized charges on credit card statements

Answer

Unexpected debt collection notices

Answer

Emails or calls from unfamiliar creditors

Question 29

Which of the following is NOT a type of credit?

Accepted Answer

Savings account

Answer

Line of credit

Answer

Credit card

Answer

Loan

Question 30

What is the primary factor that affects a credit score?

Accepted Answer

Payment history

Answer

Income

Answer

Age

Answer

Occupation

Question 31

Which of the following can help you monitor your credit?

Accepted Answer

Credit report

Answer

Budget

Answer

Financial advisor

Answer

Credit counselor

Question 32

What is the purpose of a grace period on a credit card?

Accepted Answer

To allow interest-free days to pay off the balance

Answer

To extend the due date for a payment

Answer

To improve your credit score

Answer

To lower your interest rates

Question 33

What is the difference between a secured and unsecured loan?

Accepted Answer

Secured loans require collateral while unsecured loans do not

Answer

Unsecured loans have lower interest rates than secured loans

Answer

Secured loans are typically used for larger purchases

Answer

There is no difference between secured and unsecured loans

Question 34

Which of the following is not a type of credit?

Accepted Answer

Cash

Answer

Mortgage

Answer

Student loan

Answer

Auto loan

Question 35

What factor primarily determines a person's credit score?

Accepted Answer

Payment history

Answer

Income

Answer

Age

Answer

Employment history

Question 36

Which of the following actions can negatively impact a credit score?

Accepted Answer

Maxing out credit cards

Answer

Making payments on time

Answer

Keeping credit utilization low

Answer

Monitoring credit reports for errors

Question 37

What is the purpose of a credit report?

Accepted Answer

To summarize a person's financial history

Answer

To solely determine a person's credit score

Answer

To predict future spending habits

Answer

To track a person's daily expenses

Question 38

What does it mean to have a high credit utilization ratio?

Accepted Answer

Using a large portion of available credit

Answer

Using a small portion of available credit

Answer

Having a high credit score

Answer

Being at risk of financial problems

Question 39

What is the key difference between a secured and an unsecured loan?

Accepted Answer

Secured loans require collateral, while unsecured loans do not

Answer

Unsecured loans typically have lower interest rates than secured loans

Answer

Secured loans are always riskier than unsecured loans

Answer

There is no difference between the two types of loans

Question 40

What is a credit limit?

Accepted Answer

The maximum amount of debt one can have on a credit card

Answer

The minimum amount of debt one must pay each month

Answer

The interest rate charged on a loan

Answer

The length of time one has to repay a loan

Question 41

Which of the following accurately defines the concept of credit?

Accepted Answer

The ability to borrow funds or acquire goods and services now with the obligation to repay them in the future.

Answer

The complete absence of debt

Answer

A loan provided without interest charges

Question 42

What is a primary function of a credit score?

Accepted Answer

To assess the risk associated with lending money to an applicant.

Answer

To monitor spending habits

Answer

To forecast future income

Question 43

Which factor typically does NOT influence an individual's credit score?

Accepted Answer

Age

Answer

Payment history

Answer

Outstanding debt

Question 44

What is the defining characteristic of a secured loan?

Accepted Answer

It is backed by collateral, such as a house or vehicle.

Answer

It has no repayment period

Answer

It offers a low interest rate

Question 45

What is a negative potential outcome of poor credit management?

Accepted Answer

Difficulty obtaining loans or credit in the future

Answer

Enhanced credit score

Answer

Reduced interest rates on loans

Question 46

What fundamental distinction exists between credit cards and debit cards?

Accepted Answer

Credit cards allow you to borrow money, while debit cards deduct funds directly from your bank account.

Answer

Interest rates are generally higher for debit cards compared to credit cards.

Question 47

What is the term used to describe the maximum amount of money that can be borrowed using a credit card or line of credit?

Accepted Answer

Credit limit

Answer

Interest rate

Answer

Minimum monthly payment

Question 48

What is the primary purpose of a credit report?

Accepted Answer

To provide a comprehensive summary of an individual's credit history and financial behavior.

Answer

To serve as proof of a high credit score

Answer

To list all current debts

Question 49

Which practice is NOT advisable for improving your credit score?

Accepted Answer

Maxing out your credit cards' available credit

Answer

Maintaining a low credit utilization ratio

Answer

Making timely payments on your bills

Question 50

What is the generally recommended target for credit utilization ratio?

Accepted Answer

Below 30%

Answer

70-80%

Answer

50-60%

Answer

100%