FINANCIAL LITERACY SECTION 2
PRACTICE QUESTIONS WITH MULTIPLE
ANSWERS.
Credit - Answers-Money (or goods) that a bank or business will allow a person to use
and then pay back in the future.
Consumer Credit - Answers-Short-term loans (often through the use of a credit card)
made to enable people to purchase good or services primarily for personal, family, or
household purposes.
Open Credit/Resolving Credit - Answers-A line of credit you can use and pay later.
Lines of consumer credit extended before you make a purchase.
Credit Score/FICO Score - Answers-Numerical evaluation of 'scoring' based on credit
history.
Credit Bureau - Answers-A company that gathers information on financial history; a
reporting agency that collects info on credit usage.
The three main bureaus are:
Experian, TransUnion, and Equifax
Credit Worthiness - Answers-How being able to have credit is determined.
Credit Standing/Credit Rating - Answers-Your ability to pay for goods or services. A
financial institution's evaluation of an individual's ability to manage debt.
Character (One of the 3 C's of Credit) - Answers-(One of the 3 C's of Credit) Your
Character is determined by your conduct and living habits.
Capacity (One of the 3 C's of Credit) - Answers-(One of the 3 C's of Credit) Your
Capacity determines your ability to earn enough income to cover existing and new
debts.
Capital (One of the 3 C's of Credit) - Answers-(One of the 3 C's of Credit) Your capital is
determined by what you own. It includes your savings, investments, and property.
4 Steps to Building Credit Worthiness - Answers-Step 1. Find a job that earns a steady
income
Step 2. Open checking & Savings accounts at a local financial institution.
Step 3. Apply for a credit card through a local department store, bank, or gas station.
Step 4. Apply for a short-term loan for something you need or want.
, Annual Percentage Rate (APR) - Answers-Cost of borrowing money on an annual
basis; the simple interest rate paid over the life of a loan. The yearly interest rate
charged on outstanding credit card balances.
Loan - Answers-Money borrowed that must be repaid, usually with interest.
Available Funds - Answers-Income remaining after all expenses have been paid.
Fixed Interest Rate - Answers-A rate of interest that doesn't change for the length of the
loan.
Variable Interest Rate - Answers-A rate of interest that changes during the loan period.
Cap - Answers-The highest interest rate that can be charged on a variable loan.
Open Credit - Answers-A running line of credit that you can use to make charges up to
a certain point as long as you pay off a minimum amount of your debt each month. Most
common form: credit card.
Basic Factors That Affect The Cost of Open Credit - Answers-Interest Rate
Balance Calculation Method
Cost of cash advances
Grace Period
Annual Fee
Limit Fee
Penalty Fee
Etc.
Introductory Rate - Answers-Credit Card companies offer low introductory annual
percentage rates as special promotions.
Credit Line - Answers-The maximum dollar amount that can be charged on a specific
credit card account.
Minimum Payment - Answers-The lowest amount of money that you are required to pay
on your credit card statement each month in order to keep the account in good
standing.
Annual Fee - Answers-The once-a-year-cost of owning a credit card.
Balance - Answers-In personal banking, balance refers to the amount of money in a
savings or checking account. In credit, balance refers to an amount of money owed.
Grace Period - Answers-The time a borrower is allowed after a payment is due to make
that payment without adding to the interest owed.
PRACTICE QUESTIONS WITH MULTIPLE
ANSWERS.
Credit - Answers-Money (or goods) that a bank or business will allow a person to use
and then pay back in the future.
Consumer Credit - Answers-Short-term loans (often through the use of a credit card)
made to enable people to purchase good or services primarily for personal, family, or
household purposes.
Open Credit/Resolving Credit - Answers-A line of credit you can use and pay later.
Lines of consumer credit extended before you make a purchase.
Credit Score/FICO Score - Answers-Numerical evaluation of 'scoring' based on credit
history.
Credit Bureau - Answers-A company that gathers information on financial history; a
reporting agency that collects info on credit usage.
The three main bureaus are:
Experian, TransUnion, and Equifax
Credit Worthiness - Answers-How being able to have credit is determined.
Credit Standing/Credit Rating - Answers-Your ability to pay for goods or services. A
financial institution's evaluation of an individual's ability to manage debt.
Character (One of the 3 C's of Credit) - Answers-(One of the 3 C's of Credit) Your
Character is determined by your conduct and living habits.
Capacity (One of the 3 C's of Credit) - Answers-(One of the 3 C's of Credit) Your
Capacity determines your ability to earn enough income to cover existing and new
debts.
Capital (One of the 3 C's of Credit) - Answers-(One of the 3 C's of Credit) Your capital is
determined by what you own. It includes your savings, investments, and property.
4 Steps to Building Credit Worthiness - Answers-Step 1. Find a job that earns a steady
income
Step 2. Open checking & Savings accounts at a local financial institution.
Step 3. Apply for a credit card through a local department store, bank, or gas station.
Step 4. Apply for a short-term loan for something you need or want.
, Annual Percentage Rate (APR) - Answers-Cost of borrowing money on an annual
basis; the simple interest rate paid over the life of a loan. The yearly interest rate
charged on outstanding credit card balances.
Loan - Answers-Money borrowed that must be repaid, usually with interest.
Available Funds - Answers-Income remaining after all expenses have been paid.
Fixed Interest Rate - Answers-A rate of interest that doesn't change for the length of the
loan.
Variable Interest Rate - Answers-A rate of interest that changes during the loan period.
Cap - Answers-The highest interest rate that can be charged on a variable loan.
Open Credit - Answers-A running line of credit that you can use to make charges up to
a certain point as long as you pay off a minimum amount of your debt each month. Most
common form: credit card.
Basic Factors That Affect The Cost of Open Credit - Answers-Interest Rate
Balance Calculation Method
Cost of cash advances
Grace Period
Annual Fee
Limit Fee
Penalty Fee
Etc.
Introductory Rate - Answers-Credit Card companies offer low introductory annual
percentage rates as special promotions.
Credit Line - Answers-The maximum dollar amount that can be charged on a specific
credit card account.
Minimum Payment - Answers-The lowest amount of money that you are required to pay
on your credit card statement each month in order to keep the account in good
standing.
Annual Fee - Answers-The once-a-year-cost of owning a credit card.
Balance - Answers-In personal banking, balance refers to the amount of money in a
savings or checking account. In credit, balance refers to an amount of money owed.
Grace Period - Answers-The time a borrower is allowed after a payment is due to make
that payment without adding to the interest owed.
