Fixing Your Credit Math With A Quiz

1. If your credit score increases by 50 points after paying off a loan, and your original score was 650, what is your new credit score?

700

750

650

600

Add the increase (50 points) to the original score (650): 650 + 50 = 700.

Explanation

Add the increase (50 points) to the original score (650): 650 + 50 = 700.

2. If you have three credit cards with limits of $1,000, $2,000, and $3,000, and balances of $500, $1,000, and $1,500, what is your total credit utilization ratio?

33.33%

50%

75%

100%

Calculate the ratio for each card: ($500 / $1,000) * 100 = 50%, ($1,000 / $2,000) * 100 = 50%, ($1,500 / $3,000) * 100 = 50%. Average ratio: (50% + 50% + 50%) / 3 = 150% / 3 = 50%.

Explanation

Calculate the ratio for each card: ($500 / $1,000) * 100 = 50%, ($1,000 / $2,000) * 100 = 50%, ($1,500 / $3,000) * 100 = 50%. Average ratio: (50% + 50% + 50%) / 3 = 150% / 3 = 50%.

3. If you have a credit card with a $2,000 limit and a balance of $500, what is your credit utilization ratio?

25%

50%

75%

100%

Calculate the ratio by dividing the credit card balance ($500) by the credit limit ($2,000) and multiplying by 100: ($500 / $2,000) * 100 = 25%.

Explanation

Calculate the ratio by dividing the credit card balance ($500) by the credit limit ($2,000) and multiplying by 100: ($500 / $2,000) * 100 = 25%.

4. What does "APR" stand for in the context of credit cards?

Annual Percentage Rate

Average Payment Requirement

Available Credit Period

Account Performance Rating

Annual Percentage Rate (APR) is the annualized interest rate charged for borrowing on a credit card. It represents the cost of borrowing, including interest and fees, expressed as a percentage. Understanding APR is crucial for evaluating the overall cost of credit and making informed financial decisions.

Explanation

Annual Percentage Rate (APR) is the annualized interest rate charged for borrowing on a credit card. It represents the cost of borrowing, including interest and fees, expressed as a percentage. Understanding APR is crucial for evaluating the overall cost of credit and making informed financial decisions.

5. If you have a late payment fee of $25 and an interest charge of $30 on your credit card, what is the total additional cost to your balance?

$5

$25

$30

$55

Simply add the late payment fee and interest charge: $25 (late payment fee) + $30 (interest charge) = $55.

Explanation

Simply add the late payment fee and interest charge: $25 (late payment fee) + $30 (interest charge) = $55.

6. What formula is commonly used to calculate your credit utilization ratio?

(Total Debt / Total Credit Limit) * 100

Total Debt / Total Credit Limit

Total Credit Limit * Total Debt

Total Debt * Total Debt

The credit utilization ratio is a measure of how much of your available credit you're using. It's calculated by dividing your total debt by your total credit limit and then multiplying by 100 to express it as a percentage. Lower ratios are generally considered better for your credit score.

Explanation

The credit utilization ratio is a measure of how much of your available credit you're using. It's calculated by dividing your total debt by your total credit limit and then multiplying by 100 to express it as a percentage. Lower ratios are generally considered better for your credit score.

7. What factor has the least impact on your credit score?

Payment History

Credit Utilization Ratio

Types of Credit in Use

Length of Credit History

Types of Credit in Use have the least impact on your credit score, although all factors are important. While factors like payment history and credit utilization have more influence, the types of credit you use play a smaller role in the overall calculation.

Explanation

Types of Credit in Use have the least impact on your credit score, although all factors are important. While factors like payment history and credit utilization have more influence, the types of credit you use play a smaller role in the overall calculation.

8. How does closing a credit card account affect your credit score?

Increases Credit Score

Decreases Credit Score

Has No Effect

Boosts Credit Utilization Ratio

Decreases Credit Score is the correct option. Closing a credit card account can negatively impact your credit score by reducing the total available credit, potentially increasing your credit utilization ratio. A lower credit score may result from the decrease in available credit and the impact on credit utilization.

Explanation

Decreases Credit Score is the correct option. Closing a credit card account can negatively impact your credit score by reducing the total available credit, potentially increasing your credit utilization ratio. A lower credit score may result from the decrease in available credit and the impact on credit utilization.

9. What is the purpose of a grace period on a credit card?

Delaying Payment

Interest-Free Period

Increasing Credit Limit

Lowering Credit Score

Interest-Free Period is the purpose of the grace period, providing an interest-free period on credit card purchases if the balance is paid in full by the due date. This allows cardholders to avoid paying interest on their purchases during this specified period.

Explanation

Interest-Free Period is the purpose of the grace period, providing an interest-free period on credit card purchases if the balance is paid in full by the due date. This allows cardholders to avoid paying interest on their purchases during this specified period.

10. If you have a credit card with an APR of 18% and a balance of $1,000, what is the interest charged for one month?

$18

$15

$180

$150

To calculate the interest for one month, you multiply the APR (18%) by the balance ($1,000) and then divide by 12 (months). The result is ($1,000 * 18%) / 12 = $15. This means that for the given scenario, the interest charged for one month would be $15.

Explanation

To calculate the interest for one month, you multiply the APR (18%) by the balance ($1,000) and then divide by 12 (months). The result is ($1,000 * 18%) / 12 = $15. This means that for the given scenario, the interest charged for one month would be $15.