Cwmc Module 7: Credit Competency Test
This quiz is part of LFE Institute's CWMC (Certified Workplace Money Coaching) course. It will test your proficiency in the Credit Module (Module 7) of the program. The questions are all multiple choice, and are designed to be a review of this Module. Let LFE know when you've successfully completed this test and are ready to begin the next Module.
Correct answers required for passing grade: 12/14
- 1.
Which of the following statements are credit myths? (check all that apply)
- A.
The credit card companies wouldn't send me applications in the mail if I couldn't afford it.
- B.
If I don't use credit, I'll never be able to buy anything.
- C.
Credit card interest is deductible.
- D.
I'll hurt my credit score if I check it all the time.
Correct Answer(s)
A. The credit card companies wouldn't send me applications in the mail if I couldn't afford it.
B. If I don't use credit, I'll never be able to buy anything.
C. Credit card interest is deductible.
D. I'll hurt my credit score if I check it all the time.Explanation
The statement "The credit card companies wouldn't send me applications in the mail if I couldn't afford it" is a credit myth because credit card companies often send applications to individuals without considering their financial situation. The statement "If I don't use credit, I'll never be able to buy anything" is also a credit myth because it is possible to make purchases without relying on credit. The statement "Credit card interest is deductible" is a credit myth because credit card interest is generally not tax-deductible. Finally, the statement "I'll hurt my credit score if I check it all the time" is a credit myth because checking one's own credit score does not negatively impact it.Rate this question:
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- 2.
Which of the following statements is true if you pay your credit cards in full and on time?
- A.
You can open four new credit cards this year with no negative impact on your credit score.
- B.
You will always get the best available interest rates.
- C.
You are making a wise financial choice.
- D.
Your credit card interest rate will remain below 8%.
- E.
None of the above.
Correct Answer
C. You are making a wise financial choice.Explanation
Paying your credit cards in full and on time is considered a wise financial choice because it helps you avoid accumulating debt and paying high interest rates. By doing so, you are demonstrating responsible financial behavior and maintaining a good credit score, which can have positive impacts on your financial future. This choice also allows you to have better control over your finances and avoid unnecessary fees or penalties.Rate this question:
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- 3.
Which of the following may be an indication you have been the victim of a scam? (check all that apply)
- A.
Unknown charges show up on billing statements.
- B.
Bills arrive from unknown or unfamiliar sources.
- C.
Your credit report contains inquiries about accounts you did not open.
- D.
A collection agency cannot give you specifics on charges they say you owe.
Correct Answer(s)
A. Unknown charges show up on billing statements.
B. Bills arrive from unknown or unfamiliar sources.
C. Your credit report contains inquiries about accounts you did not open.
D. A collection agency cannot give you specifics on charges they say you owe.Explanation
The given answer options provide various indications that suggest a person may have been the victim of a scam. Unknown charges appearing on billing statements could indicate unauthorized transactions. Bills arriving from unknown or unfamiliar sources could suggest fraudulent activity. Inquiries about accounts that were not opened on a credit report could indicate identity theft. Lastly, if a collection agency cannot provide specific details about charges they claim are owed, it may be a sign of a scam.Rate this question:
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- 4.
From which of the following sources can consumers obtain free credit reports twice a year?
- A.
Www.FreeCreditReport.com
- B.
A credit counseling agency
- C.
A collection agency
- D.
Their local bank
- E.
None of the above.
Correct Answer
E. None of the above.Explanation
Consumers cannot obtain free credit reports twice a year from any of the given sources. The website FreeCreditReport.com may offer credit reports but it is not free. Credit counseling agencies and collection agencies do not provide free credit reports. Local banks may offer credit reports but not necessarily for free. Therefore, none of the options mentioned in the question provide free credit reports twice a year.Rate this question:
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- 5.
What is the minimum number of Web site resources required in every response?
- A.
0
- B.
1
- C.
2
- D.
3
- E.
None are necessary if the information is common knowledge.
Correct Answer
C. 2Explanation
In every response, a minimum of two website resources are required. This means that for each response, there should be at least two sources or references from websites to support the information provided.Rate this question:
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- 6.
Which of the following are major drawbacks of working with a credit counseling agency? (check all that apply)
- A.
It will negatively affect your credit score.
- B.
The agency must report it to your employer.
- C.
Credit counseling agencies garnish wages as payment for services.
- D.
They may lock you into a contract.
Correct Answer(s)
A. It will negatively affect your credit score.
D. They may lock you into a contract.Explanation
Working with a credit counseling agency can have major drawbacks. One drawback is that it can negatively affect your credit score. This is because the agency may negotiate with creditors to lower interest rates or create a repayment plan, which can be seen as a negative factor by credit bureaus. Another drawback is that credit counseling agencies may lock you into a contract, limiting your flexibility and options.Rate this question:
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- 7.
What suggestions would you give to someone just beginning to establish a credit history? (check all that apply)
- A.
Open a checking and savings account.
- B.
Apply for a department store or gas credit card and max it out immediately.
- C.
Apply for loan or credit card through your bank.
- D.
Once approved for one card, apply for several more.
Correct Answer(s)
A. Open a checking and savings account.
C. Apply for loan or credit card through your bank.Explanation
The correct answers for this question are "Open a checking and savings account" and "Apply for loan or credit card through your bank." These suggestions are appropriate for someone just beginning to establish a credit history because opening a checking and savings account can demonstrate responsible financial management and provide a foundation for future credit opportunities. Applying for a loan or credit card through a bank can help establish a credit history with a reputable institution.Rate this question:
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- 8.
Under the CARD Act, credit card companies _________. (check all that apply)
- A.
Have a cap on the interest rates they can charge.
- B.
Can only raise your interest rate for six months if you're late making payments.
- C.
Cannot market to students under 21 years of age at all.
Correct Answer
B. Can only raise your interest rate for six months if you're late making payments.Explanation
Under the CARD Act, credit card companies are prohibited from raising the interest rate for a period of six months if the cardholder is late in making payments. This provision aims to protect consumers from sudden and drastic increases in interest rates, giving them a grace period to catch up on their payments without being penalized with higher rates. The other options, having a cap on interest rates and not marketing to students under 21 years of age, are not mentioned in the given information and therefore cannot be considered correct.Rate this question:
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- 9.
Which of the following are synonymous (associated) with the term credit score? (check all that apply)
- A.
Credit rating
- B.
Borrowing power
- C.
Credit ranking
- D.
FICO
Correct Answer(s)
A. Credit rating
B. Borrowing power
C. Credit ranking
D. FICOExplanation
Credit score is a numerical representation of an individual's creditworthiness, which is used by lenders to assess the risk of lending money to that person. Credit rating, credit ranking, and FICO are all terms that are commonly used interchangeably with credit score. Borrowing power refers to the amount of money that an individual is able to borrow based on their creditworthiness, so it is also associated with credit score.Rate this question:
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- 10.
Of the following statements about how FICO determines your credit rating, which is true?
- A.
Payment history accounts for 35% of your credit score.
- B.
If you are married, your score will be higher.
- C.
They will ignore one account that is past due as long as others are kept current.
- D.
Those with past “bad” credit can now “piggyback” with relatives with good credit.
- E.
None of the above.
Correct Answer
A. Payment history accounts for 35% of your credit score.Explanation
Payment history accounts for 35% of your credit score. This means that whether or not you have made your payments on time in the past plays a significant role in determining your credit rating.Rate this question:
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- 11.
Which of the following credit reporting agencies do lenders primarily use to determine whether to extend credit to a borrower? (check all that apply)
- A.
Experian
- B.
TransUnion
- C.
CIC Credit
- D.
Equifax
- E.
FDIC
Correct Answer(s)
A. Experian
B. TransUnion
D. EquifaxExplanation
Lenders primarily use Experian, TransUnion, and Equifax credit reporting agencies to determine whether to extend credit to a borrower. These agencies provide credit reports and scores that help lenders assess the creditworthiness of borrowers. By analyzing the borrower's credit history, payment behavior, and overall financial health, lenders can make informed decisions about granting credit. CIC Credit and FDIC are not credit reporting agencies, so they are not used by lenders for this purpose.Rate this question:
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- 12.
To improve a credit score, which of the following will help?
- A.
Review your credit report and correct any inaccuracies.
- B.
Close all accounts not in use.
- C.
Apply for new accounts to establish more credit.
- D.
Only charge 80% of your available balance.
- E.
None of the above will help.
Correct Answer
A. Review your credit report and correct any inaccuracies.Explanation
Reviewing your credit report and correcting any inaccuracies is the correct answer because it allows you to identify and correct any errors or discrepancies that may be negatively impacting your credit score. By doing so, you can ensure that your credit report accurately reflects your financial history and improve your creditworthiness. Closing all accounts not in use, applying for new accounts, and only charging 80% of your available balance may have some impact on your credit score, but they are not as effective as reviewing and correcting inaccuracies in your credit report.Rate this question:
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- 13.
Which of the following options can be used to pay old credit card balances with a new lower interest credit card? (check all that apply)
- A.
Convenience check from the credit card company.
- B.
Cash advance from the new low-interest card.
- C.
Balance transfer form.
Correct Answer(s)
A. Convenience check from the credit card company.
B. Cash advance from the new low-interest card.
C. Balance transfer form.Explanation
To pay old credit card balances with a new lower interest credit card, there are three options available: convenience check from the credit card company, cash advance from the new low-interest card, and balance transfer form. These options allow the individual to transfer the outstanding balance from the old credit card to the new one, taking advantage of the lower interest rate offered by the new card.Rate this question:
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- 14.
Which of the following statements are TRUE of Credit Counseling Agencies? (check all that apply)
- A.
The government is considering taking away their non-profit status.
- B.
Most receive “kickbacks” of some sort from the credit card companies.
- C.
Most will not work with (or try not to work with) consumers who have lost their jobs.
- D.
Most will not work with (or try not to work with) consumers who have mortgage problems, but no credit card debt.
Correct Answer(s)
A. The government is considering taking away their non-profit status.
B. Most receive “kickbacks” of some sort from the credit card companies.
C. Most will not work with (or try not to work with) consumers who have lost their jobs.
D. Most will not work with (or try not to work with) consumers who have mortgage problems, but no credit card debt.Explanation
Credit Counseling Agencies are facing the possibility of losing their non-profit status, as the government is considering taking it away. Additionally, most of these agencies receive "kickbacks" from credit card companies, which can influence the advice they provide. They also tend to avoid working with consumers who have lost their jobs or have mortgage problems but no credit card debt.Rate this question:
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