examples of when credit, if used responsibly, can be a positive when
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Personal Finance: Credit Basics questions & answers for quizzes and worksheets
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Business
9th -
Business 9th - 12th
Personal Finance: Credit Basics
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Show Answers See Preview 1. Multiple-choice 30 seconds 1 pt Q.
A line of credit established in advance so the borrower does not have to apply for credit each time new credit is desired.
answer choices Rent‐to‐own loan Pawn loan Open‐end credit
Refund anticipation loan
2. Multiple-choice 30 seconds 1 pt Q.
A loan which the borrower must repay the amount in a specified number of equal payments.
answer choices Title loan Payday loan Closed‐end credit
Refund anticipation loan
3. Multiple-choice 30 seconds 1 pt Q.
Short‐term loan that provides immediate cash by securing a borrower’s written check or receiving authorization for automatic withdrawal from the borrower’s depository institution account.
answer choices Title loan Payday loan Closed‐end credit
Refund anticipation loan
4. Multiple-choice 30 seconds 1 pt Q.
Tangible items leased with the condition that the item will be owned by the renter if the term of rent (contract) is completed.
answer choices Rent‐to‐own loan Pawn loan Open‐end credit
Refund anticipation loan
5. Multiple-choice 30 seconds 1 pt Q.
A loan based on the value of personal property.
answer choices Rent‐to‐own loan Pawn loan Open‐end credit
Refund anticipation loan
6. Multiple-choice 30 seconds 1 pt Q.
The borrower gives the lender his/her automobile title in exchange for a set amount of cash.
answer choices Title loan Payday loan Closed‐end credit
Refund anticipation loan
7. Multiple-choice 30 seconds 1 pt Q.
Short‐term cash advance secured by a taxpayer’s expected tax refund.
answer choices Title loan Payday loan Closed‐end credit
Refund anticipation loan
8. Multiple-choice 30 seconds 1 pt Q.
Annual interest rates for alternative loans can be as high as 300%.
answer choices True False 9. Multiple-choice 30 seconds 1 pt Q.
All lenders check a person’s credit report and score during the loan approval process.
answer choices True False 10. Multiple-choice 30 seconds 1 pt Q.
The terms of a loan are always consistent for the length of the loan.
answer choices True False 11. Multiple-choice 30 seconds 1 pt Q.
An example of closed‐end credit is a secure credit card.
answer choices True False 12. Multiple-choice 30 seconds 1 pt Q.
If an individual does not meet the credit terms for a pawn loan, the lender will keep the property.
answer choices True False 13. Multiple-choice 30 seconds 1 pt Q.
Evaluating the purpose of credit is an important consideration to using credit responsibly.
answer choices True False 14. Multiple-choice 30 seconds 1 pt Q.
Depending on the credit terms, if a person has a late payment, consequences including higher interest rates, may occur.
answer choices True False 15. Multiple-choice 30 seconds 1 pt Q.
Examples of when credit, if used responsibly, can be a positive. (Check All that Apply)
answer choices
Credit can provide long‐term benefits such as the opportunity to earn a higher income as a result of investing in human capital.
Credit may allow individuals to make large purchases, such as an automobile, that allows them to get to and from work.
Having a credit card will allow an individual to make online purchases more securely and provide a source of open‐end credit in case of emergency.
Credit will not allow individuals to make large purchases, such as an automobile, that allows them to get to and from work.
16. Multiple-choice 30 seconds 1 pt Q.
Describe why a person is spending future income when using credit
answer choices
When borrowing, individuals are spending their future income because they are committing to making payments for a specified
When borrowing, individuals are saving their future income because they are committing to making payments for a specified
17. Multiple-choice 30 seconds 1 pt Q.
Drew is considering purchasing a new vehicle. What are the things he should review closely on the contract? (Check all that apply)
answer choices
Interest rate – What is the annual interest rate?
Fees- Are there fees associated with the application process and/or the use of the credit? Are there any
fees for repaying the loan early?
Credit Basics *Intro to Business* Flashcards
Study with Quizlet and memorize flashcards containing terms like What are three credit sources?, Why are you spending future income when you use credit?, What are two examples of the purpose of credit providing long-term benefits? and more.
Credit Basics *Intro to Business*
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What are three credit sources?
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Definition 1 / 31
1. Depository Institutions (banks)
2. Government
3. Insurance Agencies
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Created by Alaina_Scott
Terms in this set (31)
What are three credit sources?
1. Depository Institutions (banks)
2. Government
3. Insurance Agencies
Why are you spending future income when you use credit?
You are using someone else's money
What are two examples of the purpose of credit providing long-term benefits?
1. Investing in human capitol and education loans
2. Purchasing a car to get to and from work
What can happen if credit is not managed responsibly?
Negatively impact quality of life and financial wellbeing
What are 3 benefits to using money saved or invested instead of credit?
1. No contract
2. no interest or fees
3. not spending future income
What is a disadvantage of using money saved or invested instead of credit
It takes longer
Summarize why reading a contract carefully is important and what a person should consider
• Outlines how and when you will pay money back
•Are the terms favorable?
•Is the loan feasible in present AND future?
•Are the terms consistent throughout the life of the loan
What is the recommended amount of money to borrow?
• The total amount should be less than 20% of your annual net income
• The monthly payment should be less than 10% of your monthly net income
• House payments are not included in the monthly 10%
What is closed-end credit?
A loan in which they buyer must repay the amount in a specific number of equal payments
What are the features of closed-end credit?
It has a contract outlining the repayment terms
What are some examples of closed-end credit?
Mortgage, Automobile, Loan
What is open-end credit?
extended line of credit established in advance
What are the features of open-end credit?
The loan may be payed in a single payment, to a series of unequal payments (usually monthly)
What is an example of open-end credit?
A credit card Rent-to-own
The borrower leases tangible items with the condition that the item will be owned by the renter if the term of rent is completed
Title Loan
The borrower gives the lender their automobile title or personal property in exchange for cash (based on the value of the item)
Pawn Loan
The same as a title loan, except for the Lender gets to keep the item
Refund anticipation loan
The lender gives the borrower a loan based upon their anticipated tax refund.
What is a credit application
A form requesting information about a credit applicant
What types of information does a credit application include?
• Personal information
• Credit requested
• Information about the applicants ability to repay credit
Why might a lender check a persons credit history?
To evaluate their credit report score
What is the trade-off to no credit history check?
There are often higher interest rates and fees
A line of credit established in advance so the borrower does not have to apply for credit each time new credit is desired?
Open-end credit
A loan which the borrower must repay the amount in a specified number of days
Closed-end credit
Short-term loan that provides immediate cash by securing the borrower's written check or receiving authorization for automatic withdraw from the borrowers depository institution?
Payday loan
Tangible items leased with the condition that the item will be owned by the renter if the term of rent (contract) is completed
Rent-to-own loan
Loan based on the value of personal property
Pawn loan
The borrower gives the lender his/her automobile title in exchange for a set amount of cash
Title loan
Short-term cash advance secured by a taxpayer's expected tax refund
Refund anticipation loan
What are two examples of when credit, if used responsibly, can be a positive?
1. Buying expensive things
2. Big loans (if you have a high credit score)
What are three things you should review closely on a loan
1. Interest rate
2. Are the terms favorable
3. Can you afford it
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Using Credit Cards Responsibly
Credit cards are powerful financial tools that need to be used correctly; learn how right here.
› CREDIT › CREDIT CARDS › CREDIT CARD BASICS
Using Credit Cards Responsibly
ORIGINALLY PUBLISHED ON CREDIT CARD INSIDER
BY NATHAN GRANT / REVIEWED BY MICHELLE LAMBRIGHT BLACK
PUBLISHED APR. 4, 2022 / LAST EDIT OCT. 7, 2022
READ TIME 5 MIN
WHAT YOU NEED TO KNOW
If you use credit cards responsibly, your accounts could help you build great credit and save money
Late payments or accounts that go to collections are a red flag to lenders, and such items can take a serious toll on your credit score
As long as you have the discipline to only spend what you can afford to pay off as soon as the bill is due, a credit card will probably benefit you
Contents
Credit cards can make your financial life more convenient and more rewarding. Yet, at the same time, they are serious financial tools. Using credit cards is a privilege, not a right. And no bank is obligated to approve you for a credit card account.
It’s also important to remember that your bank can choose to end its relationship with you at any time. If you misuse a credit card, you might not only lose the privileges of the account, you could also find yourself left with a surprising amount of expensive debt, and potential long-lasting damage to your credit scores and finances.
On the other hand, if you use credit cards responsibly, your accounts could help you build great credit and save money. You may also enjoy some other benefits, especially compared to debit cards or cash.
Before you can understand how to use credit cards responsibly, it helps to know how credit history works.
This page provides a quick overview of responsible credit card use. Along the way, you’ll find links to more in-depth information. The next page, our guide about how to build great credit with credit cards, will cover the specifics in more detail.
1. Understand How Credit History Works
Your credit history, sometimes simply called “your credit”, is your reputation as a borrower of money. Based on your credit history, a company may decide whether it wants to do business with you, and on what terms.
Your credit history can affect your ability to:
Get approved for a credit card
Get approved for a mortgage or an auto loan
Rent an apartment
Connect utilities at an apartment or house
Get insurance coverage
Get a cellphone plan
Find employment
You may have an advantage in each of these situations if you build good credit history. The length of your credit history is one indicator of how trustworthy you are as a borrower. The sooner you start building credit, the better.
Lenders send information about your financial behavior to credit bureaus. The credit bureaus store this information and use it to create your credit reports. See what kind of information is and isn’t in your credit reports here.
A credit score is a number that indicates how risky you are as a borrower. Lenders can use credit scores to predict the likelihood that you’ll pay a credit obligation late (by 90 days or more) in the next 24 months.
Credit scoring models are mathematical algorithms that evaluate the information on credit reports and help lenders predict the risk of loaning you money. People with good credit history receive higher credit scores, and the opposite is true as well.
2. Understand How Credit Cards Work
Once you understand how credit itself works, you should be better prepared to learn how credit works and to decide if they’re right for you.
A credit card is like an instant loan: When you make a purchase with a card, the credit card company pays for it on your behalf. Your card issuer expects you to pay them back for the loan in the future.
The maximum amount your card’s issuer will let you borrow at one time is determined by the credit limit on your credit card account.
If you don’t pay the credit card company back soon enough, they’ll start charging you interest on the amount you owe them. Interest is a fee you pay for borrowing money.
As long as you have the discipline to only spend what you can afford to pay off completely, as soon as the bill is due, a credit card will probably benefit you. When you pay off your statement balance by the due date, credit cards can be 100% free to use.
If you don’t trust yourself to only spend what you can pay in full, you may be better off avoiding credit cards. It’s easy to get deep into credit card debt if you don’t follow this simple rule. Credit cards can get expensive quickly.
Plus, on top of costing you a lot of money in credit card interest charges, carrying a balance can damage your credit scores. The ratio of your amounts owed to your available credit — known as your credit utilization ratio — is a key credit scoring factor, and the higher your utilization, the worse it typically is for your scores.
How To Use Cards Responsibly
By focusing on a few fundamentals, you can make sure your credit card accounts work in your favor.
Only spend what you can afford: Don’t rack up a larger credit card balance than you can afford to pay in full when the bill is due, except in certain situations where you can carry a balance interest-free.
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