Personal Finance Final Study Guide Part 1

T/F A "credit score" is a three-digit number which rates how much a company likes you personally.

False

T/F Checks should be written in pencil so that you can easily correct mistakes.

False

T/F If you mail in your credit card payment on the day it is due, it is not late.

False

T/F It will always take at least seven years to rebuild bad credit into good credit.

False

T/F Money orders are not a good way to pay bills. They are wildly more expensive than writing checks.

True

You have $500 in your account. You are very responsible. What is the maximum amount of money you should spend?

$400

If you use mobile payment and you lose your phone, you should:

Cancel your credit card ASAP.

What is the best way to hurt your credit rating?

Make all your payments early except your credit cards. It's OK to pay them late.

What answer best describes a Nigerian scam?

Nigerian scammers nearly always want you to send money back to them.

T/F Since my credit score is going to impact my freedom, my job, and my goodie collection, I should start thinking about my credit score now.

True

T/F The credit history of borrowers is shared with other financial institutions. This means all lenders are likely to know of any payments that you have missed.

True

Why should you do research beyond an article you read?

All of the above. (1. It may be native advertising. 2. The source of the article may not be impartial. 3. To learn about alternative solutions.)

Look at the following statements. Choose the one correct answer.

All of the above. (1. Online bill paying can make a lot of sense. 2. Checking accounts can (and should) be linked to savings accounts.)

Which statement gives the best definition of financial credit?

Financial credit is an arrangement for you to pay at a later date. Loans and credit cards are forms of credit. Financial credit is also a way that lenders, businesses, and potential employers determine whether someone is trustworthy.

Which answer applies to "fine print"?

Fine print is usually where virtually all the important information is located.

Your credit score says most companies will loan you money at ten percent interest. A company agrees to loan you money at twenty percent interest. This is an example of what?

Predatory Lending.

Which statement is true about risk-based financing?

Risk-based financing is a way that lenders determine your interest rate for a loan based on how likely you are to repay that loan.

Which of these people has "bad credit"?

Tamara's parents co-signed a car loan for her new wheels. Her monthly payment is due by the 15th of each month. So far she has made the payment each month. But on three months, she sent her payment after the due date on the coupon because she had not yet received her bi-weekly paycheck from her part-time job. On more than one occasion she was more than 30 days late.

T/F Your credit history and your credit score hold the key to your financial future.

True

What can you look for to tell you that an article is native advertising?

Words like "custom content".

T/F The main job of credit bureaus is to teach you how to have a high credit score.

False

Select the one statement that accurately describes credit bureaus (also called "credit reporting agencies").

Credit bureaus keep records of your spending habits for seven to ten years.

Do many companies like it when you look like a fool?

Definitely! The job of many companies is to make money, not to do what is right for you... If you look like a fool, they make more money.

What statement is TRUE about "phishing scams"?

Phishing scams cannot hurt you if you do not respond to them

You owe $1,000 on a credit card and choose to pay the minimum payment each month. Which answer is correct?

Credit card companies love you when you only make minimum payments! Why? You're throwing your money away by paying extra interest each month.

Which of the following things will affect your credit score?

All of the above. (1. Skipping payments on your cell phone account. 2. Paying your bills on time. 3. Paying your bills late.)

If you mismanage your checking account by bouncing checks repeatedly or ignoring overdraft notices, which of the following results may happen to you? [Tricky question: read all answers.]

All of the above. (1. You will be charged a penalty fee for a "returned" (bounced) check. 2. You may pay higher rents or interest rates because of your poor credit history. 3. If you aren't aware of your "negative balance" and don't put more funds in your account you bounce more checks and receive more penalty fees.)

Which of these credit scores represents the worst credit rating? 702, 350 , 810 , 512

350

What should you do when you open a checking account?

All of the above. (1. Open a savings account at the same time you open your checking account. 2. Link your checking account to your savings account. 3. Try to sign up for true overdraft protection, even though you have to pay for it.)

You mailed in your credit card payment late but when you wrote the check you dated it for January 13th even though the due date is the 15th. Which statement is true?

The payment is still late because the payment was not received by the due date.

What is the best explanation of "debt-to-income" ratio?

The ratio of how much money individuals owe in relation to how much money they make.

T/F A debit card normally has a MasterCard or Visa logo on it.

True

T/F Good credit is the key to financial freedom.

True

T/F Your credit score is based on your payment history.

True

Good credit gives you options. Bad credit takes away your options. Choose the one correct answer.

You have good credit. You can choose the credit card with the lowest interest rate.

You owe $1,000 on a credit card and choose to pay the minimum payment each month. Which answer is correct?

Making minimum payments means it could take thirty or forty years to pay off that $1,000 credit card bill.

Which answer applies to "fine print"?

Many companies like fine print because you can be confused by it, and make the wrong decision.

You add your sister to your cell phone plan and she runs up your bill. Whose credit will be hurt if the bill is not paid?

Mine - I am always responsible for my accounts.

You have $400 in your checking account, and deposit a check for $700. The teller says that the $700 check is on hold for five days. Tomorrow, you want to pay a $600 bill with a check. Should you write that check?

No

The business that gives you a loan or rents you an apartment is the one in charge of your credit record and credit score.

No, I am in charge of my credit history.

Because your credit rating is low, a company charges you more interest on a loan. But the interest rate is not directly related to your credit. This company charges you as much as it can, simply because they think you have no other choices. This is a definition of:

Predatory lending.

Which one of the following statements about risk-based financing is FALSE?

Risk-based financing is illegal and cannot be used by companies.

You own a credit bureau. You're trying to decide which person is the better credit risk. Which statement/person would you choose as the better credit risk?

Ted is just about to pay off his 36-month loan on his used RAV4. He's made 35 monthly payments on time to his credit union and is sending the 36th payment in on time, too.

It is stupid to trust an ATM machine to tell you the correct balance in your account. Why?

The balance you see on the ATM machine or online may not include payments that haven't yet been deducted from your balance.

Having a bad credit history impacts every one of these items but one. Which is the one item not impacted by bad credit history?

The fact that I am a good person.

Which answer applies to "fine print"?

The fine print can say the opposite of the big print.

Your credit score rules your life - that's reality. Which of these statements is an example of that reality?

The higher your credit score, the higher chance you have of qualifying for a loan.

T/F After obtaining bad credit there is no easy fix to get good credit other than building back up through years of paying your bills on time every month and decreasing your debt-to-income ratio.

True

T/F Credit is an arrangement for you to pay at a later date. It is one way to determine trustworthiness.

True

You don't keep a $100 balance in your checking account, and you overdraw your account a few times. Which of these is the most likely result?

Your financial institution will charge you an "overdraft fee" every time you overdraw your account, and will probably tell the credit bureaus you have overdrawn your account. The credit bureau might lower your credit rating. If the credit bureaus lower your credit rating, you get charged more on interest for loans and credit cards, and you may have to pay bigger deposits for utilities.

With bad credit you are more dependent on others. Which statement is correct?

Bad credit means you may have to live at home with your parents for a long time. It also means you may have trouble getting a good job, and trouble getting a loan. And even if you get a loan, you will pay a lot more in interest.

Why do companies check your credit rating?

Because many companies believe your credit history lets them know if you would be a good or bad employee.

If you are renting an apartment with a roommate and all of the utilities are in your roommate's name why would your payments not help or hurt your credit rating?

Because unless my name is on the account the credit bureaus do not recognize the payments.

What is FoolProof's definition of "looking like a fool"?

Falling for anything which makes companies and other people think you're too stupid or too young to know better.

T/F How long you've had an account - like a credit card or a cell phone account - has nothing to do with determining your credit score.

False

T/F Many companies always look out for the consumer and give them repayment plans that can be paid off in the shortest amount of time possible.

False

T/F Most businesses only tell you the good things about their product or service. Your job is to buy a product or service based on what a business says.

False

T/F Most online financial institutions and businesses will regularly send you emails asking you to update your account information by going to a link in their emails.

False

T/F Native advertisers are required to show all sides of an issue in articles they publish.

False

T/F The more times your credit is checked when applying for credit cards or loans will help build your credit rating.

False

T/F Utility companies such as phone, electric and gas companies generally do not care about your credit history and will always let you use their services, even if you have bad credit and even if you don't pay them.

False

Which statement best illustrates how good credit can give you power?

Having good credit can lead to a better paying job and better interest rates on a loan, for a car, a home, etc.

Vinnie (our friend in the video) had many credit cards, and he did have fun with them! Then he nearly went broke. What was the main thing Vinnie did wrong?

He used one credit card to pay other credit card bills.

What is a "debt-to-income" ratio?

How much money you owe in total versus how much you make.

Native advertising can include all of the following except:

Independent journalists

T/F It's stupid to trust an ATM machine to tell you your checking account balance.

True

T/F My goal should be to have a high credit score.

True

T/F Some financial institutions can be really bad about putting unexpected charges on your checking account.

True

T/F When you fill out a check for a certain amount of money and then sign that check, you are guaranteeing that your account has that much money in it.

True

ATM cards and debit cards are much alike. But what is the biggest difference between an ATM card or debit card, and a credit card? Choose the one right answer.

When you pay with a debit or ATM card, you are not borrowing money. You are spending your own money. When you pay with a credit card, you are always borrowing money.

Which statement best describes putting a "hold" on a check?

You deposit a check in your checking account, and the teller tells you the money will be available in five days.

Why would a smart person keep at least a $100 balance in their checking account at all times? Which answer is MOST correct?

You never know when unexpected fees or expenses will hit your checking account. And you can at times forget to write down a payment you make with your checking account or debit/ATM card. So, you're less likely to overdraw your account if you always keep a hundred dollar balance.

What is the easiest way to ruin your credit with your checking account?

You overdraw your account.

Which answer applies to "fine print"?

You should always read the fine print.

Which of the following situations illustrates "overdrawing" your account?

You write a check for more money than you have in your account.

Which of the following statements about your credit report is most accurate?

Your credit report can be checked once a year for free at the major credit reporting agencies.

Which of the following statements about your credit report is most accurate?Which of the following statements about your credit report is most accurate?

Your credit report can be checked once a year for free at the major credit reporting agencies.