Credit Literacy Group Quiz #1
This introductory quiz is made to help consumers become aware of the vast number of myths and misconceptions and includes some of the basic elements of about credit and financial literacy. �
Questions and Answers
- 1.
A credit score is the ranking of how well we have paid our bills in the past.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Believe it or not, even with all of the press about credit and credit scores, 90% of American consumers believe this is correct; it is not. ALL consumers need to know the truth. Become a member or take our online courses to learn what you should have been taught already.Rate this question:
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- 2.
Credit scores affect the cost of which of the following:
- A.
Insurance Premiums
- B.
Employment opportunities
- C.
Interest Rates / Loan Terms (and therefore payments)
- D.
All of the above
Correct Answer
D. All of the aboveExplanation
Become a member or take our online courses to learn what you should have been taught already.Rate this question:
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- 3.
You discover a creditor has incorrectly reported derogatory information on your account and you decide to dispute this inaccuracy with the credit bureaus. The credit bureaus then notify you that they are deleting the disputed reference and concluding their investigation. Is the creditor allowed to report this information again to be placed on your credit report?
- A.
Yes, the creditor can report the information again to the credit bureaus.
- B.
No, once deleted the item the item must remain off of your report.
- C.
Yes, but only with your authorization.
- D.
Sure but they will be subject to fines and penalties.
Correct Answer
A. Yes, the creditor can report the information again to the credit bureaus.Explanation
Once the credit bureaus have deleted the disputed reference and concluded their investigation, the creditor is allowed to report the information again to the credit bureaus. This means that the derogatory information can potentially reappear on your credit report.Rate this question:
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- 4.
You employ a ‘Credit Repair Company’ and pay them $350 to finally get the item removed from your credit report. The Credit Repair Company provides you a money back guarantee that they will be successful in getting the item deleted from your file. In June you received confirmation from the bureaus that the item has been deleted but in August you discover that the item has reappeared on your file. You contact the Credit Repair Company for a refund of your $350, if they honor their agreement will they return your money?
- A.
Yes
- B.
No
Correct Answer
B. NoExplanation
The Credit Repair Company promised a money back guarantee if they were successful in getting the item deleted from the credit report. However, in this case, the item reappeared on the file after it had been deleted. Therefore, the Credit Repair Company did not fulfill their agreement, and as a result, they should refund the $350.Rate this question:
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- 5.
Each consumer has a credit score in their credit file and the score adjusts up or down each month, based on positive or negative information reported by creditors.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
The statement is false because not every consumer has a credit score in their credit file that adjusts up or down each month based on information reported by creditors. While many consumers do have a credit score, it is not a requirement for everyone and not all credit scores are updated monthly. Additionally, credit scores can be affected by various factors, not just information reported by creditors.Rate this question:
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- 6.
Consumers with credit scores lower than _____ should be prepared to pay extra in interest expense because the credit industry considers these customers to be a higher risk.
- A.
760
- B.
720
- C.
680
- D.
660
Correct Answer
A. 760Explanation
Consumers with credit scores lower than 760 should be prepared to pay extra in interest expense because the credit industry considers these customers to be a higher risk. A credit score is a numerical representation of an individual's creditworthiness, and a lower score indicates a higher risk of defaulting on loans or credit payments. Lenders and credit institutions use credit scores to assess the likelihood of a borrower repaying their debts. Therefore, individuals with lower credit scores are seen as riskier borrowers, and lenders compensate for this increased risk by charging higher interest rates.Rate this question:
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- 7.
Chris and Sandy are each obtaining a $300,000 mortgage loan. Chris has 720 median credit score and Sandy has 760 credit score. Chris will have a mortgage payment how much higher than Sandy because of the lower credit score?
- A.
Approximately $15 per month
- B.
Approximately $35 per month
- C.
Approximately $110 per month
- D.
None; both are excellent scores and will result in no discernible difference
Correct Answer
C. Approximately $110 per monthExplanation
The correct answer is "Approximately $110 per month." This is because credit scores have a significant impact on mortgage interest rates. A lower credit score means a higher interest rate, which in turn leads to a higher monthly mortgage payment. The 40-point difference in credit scores between Chris and Sandy is likely to result in a significant difference in their interest rates, leading to Chris having a mortgage payment approximately $110 higher than Sandy's.Rate this question:
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- 8.
Credit bureaus are legally required to investigate any item disputed by a consumer. Essentially, the investigation process that credit bureaus are required to follow is that after receiving dispute from consumer, the credit bureau must:
- A.
Ask the creditor whether the information they reported to the bureau(s) was accurate; if the creditor says the information is correct, the investigation is complete.
- B.
Consider your claim and determine the likelihood of your accuracy based on documentation you provide.
- C.
Ask you and the creditor for documentation proving accuracy; they then evaluate all documentation to determine the truth and report on your file based on their decision.
- D.
Request evidence from you supporting your claim and base decision on your submitted documentation.
Correct Answer
A. Ask the creditor whether the information they reported to the bureau(s) was accurate; if the creditor says the information is correct, the investigation is complete.Explanation
The correct answer is "ask the creditor whether the information they reported to the bureau(s) was accurate; if the creditor says the information is correct, the investigation is complete." This is the correct answer because it accurately describes the investigation process that credit bureaus are required to follow. After receiving a dispute from a consumer, the credit bureau must reach out to the creditor and ask them to verify the accuracy of the reported information. If the creditor confirms that the information is correct, the investigation is considered complete.Rate this question:
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- 9.
You have a balance of $10 on your credit card at the end of last month. Today you purchase a microwave for $200 using your credit card. As long as you pay $210 toward your balance by the end of the grace period you will avoid paying any interest on the microwave purchase.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
The statement is false because in order to avoid paying any interest on the microwave purchase, you would need to pay off the full balance of $200 by the end of the grace period. Paying only $210 towards the balance would not cover the full amount owed and therefore you would still incur interest on the remaining balance.Rate this question:
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- 10.
Paying ‘points’ when obtaining a mortgage means that you:
- A.
Have paid money for having a riskier loan.
- B.
Have an expensive mortgage company.
- C.
Are paying money to get a lower interest rate.
- D.
Will have to pay a pre-payment penalty if you pay off your mortgage.
Correct Answer
C. Are paying money to get a lower interest rate.Explanation
When you pay "points" when obtaining a mortgage, it means that you are paying an upfront fee to the lender in exchange for a lower interest rate on your mortgage. This can be beneficial because a lower interest rate will result in lower monthly mortgage payments and potentially save you money over the life of the loan. It is a way to reduce the overall cost of borrowing and make the mortgage more affordable.Rate this question:
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- 11.
You decide to buy a certain car and the car is guaranteed to last 20 years without repair or maintenance BUT at the end of 20 years they take the car back from you. You decide to pay CASH for the car and the dealer offers two payment plans for you to choose from; financially speaking, which of the following should you choose:
- A.
Pay $10,000 for the car now and get zero back at the end of the 20 years.
- B.
Pay $20,000 for the car now and get all $20,000 returned at the end of the 20 years.
Correct Answer
A. Pay $10,000 for the car now and get zero back at the end of the 20 years.Explanation
Paying $10,000 for the car now and getting zero back at the end of 20 years is the better option. This is because the car is guaranteed to last 20 years without repair or maintenance. By paying $10,000 upfront and not receiving any money back, you are effectively paying less for the car compared to the second option. Paying $20,000 upfront and getting all $20,000 returned at the end of 20 years would mean that you are essentially loaning the dealership $20,000 for 20 years without any interest or benefit. Therefore, it is financially wiser to choose the first option.Rate this question:
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- 12.
An ‘Introductory’ interest rate on a new credit card must stay in place and not change for how long?
- A.
3 months
- B.
6 months
- C.
9 months
- D.
12 months
Correct Answer
B. 6 monthsExplanation
The introductory interest rate on a new credit card must stay in place and not change for 6 months. This means that for the first 6 months after getting the credit card, the interest rate will remain the same and will not increase or fluctuate. After the 6-month period, the regular interest rate will apply.Rate this question:
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- 13.
You discover that a ‘hacker’ has stolen you identity and you have become a victim of Identity Theft. They have opened 4 new credit cards with $5,000 charged on each new card. They have also charged $2500 on each of the 3 credit cards you have currently. All in all, this thief has illegally incurred $27,500 in charges under your name. Presuming you file the required police reports, how much of the charges are you personally responsible and required to pay?
- A.
$27,500
- B.
$7,500
- C.
$150
- D.
None of the above, there is insufficient information provided to make determination
Correct Answer
C. $150Explanation
Based on the information provided, the correct answer is $150. This is because the question states that the thief has charged $2500 on each of the 3 credit cards the victim currently has, which amounts to $7500. The thief has also opened 4 new credit cards with $5000 charged on each new card, which amounts to $20000. Therefore, the total charges made under the victim's name is $27500. However, since the victim has filed the required police reports, they are not personally responsible for these charges and are not required to pay any of it except for the $150, which is the maximum liability for unauthorized charges on credit cards according to the Fair Credit Billing Act.Rate this question:
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- 14.
You discover that a ‘hacker’ has stolen you identity and you have become a victim of Identity Theft, the same circumstance as last example – but in this example you have an Identity Theft protection service. True or False: Because you have Identity Theft Protection Coverage, your coverage will pay for any amounts for which you are deemed responsible?
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
False. Having Identity Theft Protection Coverage does not mean that the coverage will pay for any amounts for which you are deemed responsible. Identity Theft Protection Coverage typically helps in detecting and resolving identity theft issues, but it does not absolve the individual from any responsibility or liability for the theft. The coverage may assist in the recovery process and provide certain services, but it does not guarantee financial reimbursement for any losses or damages incurred.Rate this question:
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- 15.
There is NO method of Identity Theft protection that is 100% effective in prevention of your identity being stolen for the purposes of opening credit in your name.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
The statement states that there is no method of identity theft protection that is 100% effective in preventing identity theft for the purpose of opening credit in your name. The correct answer is false because there are methods of identity theft protection, such as credit monitoring services and freezing your credit, that can significantly reduce the risk of identity theft and make it more difficult for someone to open credit in your name. While no method can guarantee 100% prevention, taking proactive steps can greatly enhance your protection against identity theft.Rate this question:
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Quiz Review Timeline +
Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.
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Current Version
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Mar 21, 2023Quiz Edited by
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Feb 28, 2011Quiz Created by
Captive8
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