A Multiple-Choice Quiz for Teens and Young Adults
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Charging on a credit card is essentially taking out a loan. a. True. b. False.
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Something else that threw me at first was all the different credit-card interest rates. When I looked into it, I found that interest rates vary because of the following: a. It all depends on the business cycle. If the economy is down then credit-card interest rates go down too. If the economy is up then interest rates rise. Pay attention to the cycle. b. Interest rates vary for a lot of reasons, including your credit history, the features of the credit card, whether you’re making a purchase or getting a cash advance and whether the credit-card issuer has an introductory promotional rate – sort of like a sale on a product. c. Interest rates change depending on what part of the country you live in and different state and local laws and regulations – just like the price of gasoline changes from state to state and region to region depending on state taxes and how close you are to oil refineries. d. Interest rates change a lot depending on the type of lending institution issuing the card – whether it’s a bank or a credit union or a savings and loan or a company that just issues credit cards.
I’m in college and I just got my first credit card, with a credit limit of $1,000. I’m going to be cautious about using it but I ran across this rule of thumb. Now and in the future, I should always keep what I owe below what percent of my credit limit? a. 30 percent c. 70 percent b. 50 percent d. 90 percent
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Every commercial I see about a car loan or a credit card includes APR, which I know stands for annual percentage rate. But what does APR really mean? a. The APR is a number that combines the interest rate, the length of the loan, and the fees to show you the cost of the loan on an annual basis. Lower APRs mean lower costs. b. Some loans and credit cards have interest rates that change, depending on the prime rate, which is the rate banks give their best customers. The APR is the average of those rates for a 12-month period. c. APR is the interest rate set when you get a credit card or loan. Typically these rates last for 12 months, which is why they call them annual percentage rates. d. The APR is an interest rate set annually by the government for particular types of loans or credit cards.
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I’m considering getting a credit card and I’ve heard the term “minimum payment” and thought that meant I can pay a small amount and charge a lot more. And then I did some investigating online and I found out this about minimum payments: a. The great untold story about credit cards is that paying 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.
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In doing my homework I also learned that it’s a good idea to take a look at your credit reports annually because: a. Credit reports, which are information provided for a small fee by credit-counseling agencies, will show you 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 in the habit of checking them periodically. c. Credit reports show your entire credit history of loans and credit cards that have been reported, how regularly you make payments and whether any action has been taken because of unpaid bills. They are prepared by independent credit bureaus and you should check them for mistakes.
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Your credit score is a number between 300 and 850. Lenders typically give their lowest interest rates to people with credit scores that are at least: a. 520 c. 720 b. 620 d. 820
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Since I’m just starting out, I was curious about what I could do to build a good credit history and credit score and I learned that these are some of the most important things: a. To build a good history, go ahead and apply for plenty of credit cards but keep zero balances on most of them. b. Never go above the credit line on my credit card. c. Pay my bills on time every time. d. b and c above.
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Credit scores are different from credit reports— but they are related. Credit scores are calculated like this: a. When you apply for a credit card or a loan, the lender uses a standard formula based on all the information you submitted and your past history with the particular lender and the lender comes up with your credit score. b. Using a mathematical formula, credit bureaus figure credit scores from your credit report and that number helps indicate how reliable you are at paying back your debts. c. You take a standardized test and just like SAT or ACT scores, and they show how much you know about credit and loans. It’s an excellent idea to take this test to show lenders you are serious about paying off credit. 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.
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An easy way to control monthly spending and create a good habit that will benefit you for life is to create a budget. Which of the following are necessary steps for creating a budget? a. Add up all my monthly expenses like rent, food, car payments, cell phone and utilities, Internet services, tuition, insurance, gas, etc. b. Add up my after-tax monthly income, including pay for my job, scholarships, loans, money from home, etc. c. Subtract my expenses from my income, leaving what is left for me to spend or save. d. All of the above.
3. a. APRs can help comparison-shop for loans and credit cards. Lenders are required to tell you a loan’s APR, so they are a good number to look for. 2. c. A good rule of thumb is to keep what you owe below 70 percent of your credit limit, to show that you can control your use of credit – and also to leave enough credit available in case of an emergency. 1 a. True. Just like other loans, you have to pay back the money you borrow plus interest and any other finance charges. The interest is calculated by applying the interest rate to the unpaid balance on the loan. ANSWERS:
5. d. Always pay at least the minimum to keep your account in good standing and show that you are reliable at paying back your debts. If you can’t pay the entire balance, have a plan to pay down the full amount owed. For example, your plan could be to limit spending on your credit card until you can pay off your balance. 4. b. Always pay close attention to the interest rate. And here’s a tip – try to use cash advances only for emergencies since they often carry higher interest rates.
7. b. Credit scores will go higher or lower depending on your financial behavior. Good financial behavior, like making credit-card payments on time, will help your score go higher. The better your score, the lower your interest rate. To get a free estimate of your credit score, visit www.whatsmyscore.org. 6. c. Under federal law you are entitled to a free credit report annually from each of the three major credit bureaus. To get your free reports, go to www. annualcreditreport.com or call 877322-8228. If you think your report has an error, you should contact the credit bureau right away since they help show how much of a credit risk you are for loans and other things that involve paying bills.
10. d. Steps a, b and c above make up a simple three-step process for a budget. If nothing is left after the third step, balance your budget by cutting some of your “want” items that aren’t necessities. 9. d. Always staying below the credit line on your credit card and always making all your payments on time are two of the best ways to build good credit. 8. c. Not just lenders but landlords and employers also use credit scores as a decision-making factor, so it’s important to build a good credit history and achieve a high score.