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					                                             A Multiple-Choice Quiz for Teens and Young Adults

    Charging on a credit card is                                   Something else that threw me at first was all the
1   essentially taking out a loan.                             4   different credit-card interest rates. When I looked
                                                                   into it, I found that interest rates vary because of the
         a. True.                     b. False.
    I’m in college and I just got my first credit card, with       a. It all depends on the business cycle. If the economy
2   a credit limit of $1,000. I’m going to be cautious             is down then credit-card interest rates go down too. If
    about using it but I ran across this rule of thumb.            the economy is up then interest rates rise. Pay atten-
    Now and in the future, I should always keep what I             tion to the cycle.
    owe below what percent of my credit limit?                     b. Interest rates vary for a lot of reasons, including your
         a. 30 percent          b. 50 percent                      credit history, the features of the credit card, whether
                                                                   you’re making a purchase or getting a cash advance
         c. 70 percent          d. 90 percent                      and whether the credit-card issuer has an introductory
                                                                   promotional rate – sort of like a sale on a product.
    Every commercial I see about a car loan or a credit
3   card includes APR, which I know stands for annual
                                                                   c. Interest rates change depending on what part of
                                                                   the country you live in and different state and local
    percentage rate. But what does APR really mean?                laws and regulations – just like the price of gasoline
    a. The APR is a number that combines the interest rate,        changes from state to state and region to region
    the length of the loan, and the fees to show you the           depending on state taxes and how close you are to oil
    cost of the loan on an annual basis. Lower APRs mean           refineries.
    lower costs.                                                   d. Interest rates change a lot depending on the type
    b. Some loans and credit cards have interest rates that        of lending institution issuing the card – whether it’s
    change, depending on the prime rate, which is the              a bank or a credit union or a savings and loan or a
    rate banks give their best customers. The APR is the           company that just issues credit cards.
    average of those rates for a 12-month period.
                                                                   I’m considering getting a credit card and I’ve heard
    c. APR is the interest rate set when you get a credit
    card or loan. Typically these rates last for 12 months,
                                                               5   the term “minimum payment” and thought that
    which is why they call them annual percentage rates.           meant I can pay a small amount and charge a lot
                                                                   more. And then I did some investigating online and
    d. The APR is an interest rate set annually by the gov-
                                                                   I found out this about minimum payments:
    ernment for particular types of loans or credit cards.
                                                                   a. The great untold story about credit cards is that pay-
                                                                   ing the minimum payment is all you ever have to do.
                                                                   b. Minimum payments change regularly not just
                                                                   according to what you charge but according to your
                                                                   bank’s prime interest rate – the rate banks charge to
                                                                   their best customers.
                                                                   c. Minimum payments are really just a guideline and
                                                                   it’s okay to pay less, especially every once in awhile.
                                                                   d. Minimum payments are just that – the minimum
                                                                   to keep your account in good standing. You should
                                                                   always pay the minimum – but it’s much better to pay
                                                                   the entire balance if possible, and that will help you
                                                                   avoid interest charges as well.
  6        In doing my homework I also learned that it’s a
           good idea to take a look at your credit reports annu-                     8     Your credit score is a number between 300 and 850.
                                                                                           Lenders typically give their lowest interest rates to
           ally because:                                                                   people with credit scores that are at least:
           a. Credit reports, which are information provided for a                               a. 520                              b. 620
           small fee by credit-counseling agencies, will show you
                                                                                                 c. 720                              d. 820
           how you are doing compared to your financial goals.
           b. Credit reports get really important only when you
           go to buy a car or a house but it’s a good idea to get                    9     Since I’m just starting out, I was curious about what
                                                                                           I could do to build a good credit history and credit
           in the habit of checking them periodically.                                     score and I learned that these are some of the most
           c. Credit reports show your entire credit history of                            important things:
           loans and credit cards that have been reported, how
                                                                                           a. To build a good history, go ahead and apply for
           regularly you make payments and whether any action
                                                                                           plenty of credit cards but keep zero balances on most
           has been taken because of unpaid bills. They are pre-
                                                                                           of them.
           pared by independent credit bureaus and you should
           check them for mistakes.                                                        b. Never go above the credit line on my credit card.
                                                                                           c. Pay my bills on time every time.
   7       Credit scores are different from credit reports—
           but they are related. Credit scores are calculated like                         d. b and c above.
           a. When you apply for a credit card or a loan, the                       10     An easy way to control monthly spending and cre-
                                                                                           ate a good habit that will benefit you for life is to
           lender uses a standard formula based on all the infor-                          create a budget. Which of the following are neces-
           mation you submitted and your past history with the                             sary steps for creating a budget?
           particular lender and the lender comes up with your
           credit score.                                                                   a. Add up all my monthly expenses like rent, food, car
                                                                                           payments, cell phone and utilities, Internet services,
           b. Using a mathematical formula, credit bureaus figure                          tuition, insurance, gas, etc.
           credit scores from your credit report and that number
           helps indicate how reliable you are at paying back                              b. Add up my after-tax monthly income, including pay
           your debts.                                                                     for my job, scholarships, loans, money from home, etc.
           c. You take a standardized test and just like SAT or ACT                        c. Subtract my expenses from my income, leaving
           scores, and they show how much you know about                                   what is left for me to spend or save.
           credit and loans. It’s an excellent idea to take this                           d. All of the above.
           test to show lenders you are serious about paying off
           d. Credit scores are derived from a complex formula
           that averages all the interest rates you are paying on
           credit cards and your other loans and the outstanding
           balances to come up with a single figure.

                                              your credit score, visit www.whatsmy-
necessities.                                  interest rate. To get a free estimate of
some of your “want” items that aren’t         The better your score, the lower your                                                 are a good number to look for.
step, balance your budget by cutting          time, will help your score go higher.                                                 required to tell you a loan’s APR, so they
budget. If nothing is left after the third    like making credit-card payments on                                                   for loans and credit cards. Lenders are
up a simple three-step process for a          behavior. Good financial behavior,         can pay off your balance.                  3. a. APRs can help comparison-shop
10. d. Steps a, b and c above make            lower depending on your financial          spending on your credit card until you
                                              7. b. Credit scores will go higher or      example, your plan could be to limit       an emergency.
 credit.                                                                                 pay down the full amount owed. For         leave enough credit available in case of
 two of the best ways to build good          paying bills.                               pay the entire balance, have a plan to     control your use of credit – and also to
 making all your payments on time are        for loans and other things that involve     paying back your debts. If you can’t       your credit limit, to show that you can
 line on your credit card and always         show how much of a credit risk you are      ing and show that you are reliable at      what you owe below 70 percent of
 9. d. Always staying below the credit       bureau right away since they help           to keep your account in good stand-        2. c. A good rule of thumb is to keep
                                             an error, you should contact the credit     5. d. Always pay at least the minimum
credit history and achieve a high score.     322-8228. If you think your report has                                                 balance on the loan.
factor, so it’s important to build a good or call 877-         interest rates.                            applying the interest rate to the unpaid
decision-making                              To get your free reports, go to www.        cies since they often carry higher         charges. The interest is calculated by
employers also use credit scores as a        each of the three major credit bureaus.     use cash advances only for emergen-        plus interest and any other finance
8. c. Not just lenders but landlords and     to a free credit report annually from       interest rate. And here’s a tip – try to   to pay back the money you borrow
                                             6. c. Under federal law you are entitled    4. b. Always pay close attention to the    1 a. True. Just like other loans, you have


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