Quiz 2 2015: Credit Cards, Credit Reports, Credit Scores And Paying For College

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  • 1/15 Questions

    True or False.  The "net price" (your out-of-pocket expenses) for a college education is often significantly LESS than the "sticker price" due to financial aid provided by the college to reduce the cost to those with the greatest financial need.  

    • True
    • False
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About This Quiz

This quiz covers essential aspects of credit management, including best practices for credit card usage, key factors affecting credit scores, understanding credit reports, and the implications of credit scores on loan interest rates. It aims to enhance financial literacy by focusing on practical credit-related scenarios.

Credit Management Quizzes & Trivia

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  • 2. 

    Your friend asks you how he can increase his credit score.  What is the best advice that you can give him?

    • Make on-time payments on all of your loans (credit cards, student loans, auto loans)

    • Apply for more credit cards

    • Take out a student loan

    • Miss a few payments on your loans

    Correct Answer
    A. Make on-time payments on all of your loans (credit cards, student loans, auto loans)
    Explanation
    Making on-time payments on all loans (credit cards, student loans, auto loans) is the best advice to increase a credit score. This is because payment history is a significant factor in determining credit scores. Consistently making payments on time demonstrates responsible financial behavior and can positively impact creditworthiness. Applying for more credit cards, taking out a student loan, or missing payments on loans can have negative consequences on credit scores.

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  • 3. 

    Which of the following factors should be considered when selecting a college?

    • The "net price" of the college/university

    • Graduation rates

    • Whether college offers the field of study you are interested in

    • Quality of the student body based on test scores, GPA and selectivity of admissions

    • All of the above

    Correct Answer
    A. All of the above
    Explanation
    When selecting a college, it is important to consider various factors. The "net price" of the college/university is an important consideration as it determines the affordability of the institution. Graduation rates indicate the success of students in completing their degrees. The availability of the field of study you are interested in is crucial to ensure that you can pursue your desired career path. Lastly, the quality of the student body, which includes test scores, GPA, and selectivity of admissions, can give an idea of the academic standards and competitiveness of the college. Therefore, all of the mentioned factors should be considered when selecting a college.

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  • 4. 

    Which of these organizations can see your credit report?

    • Lenders you are seeking to borrow from

    • Utility companies

    • Employers or prospective employers

    • Landlord whose apartment you want to rent

    • All of the above

    Correct Answer
    A. All of the above
    Explanation
    All of the above organizations can see your credit report. Lenders you are seeking to borrow from, utility companies, employers or prospective employers, and landlords whose apartment you want to rent all have the ability to access your credit report. This is because your credit report provides information about your financial history and creditworthiness, which is important for these organizations to assess your ability to repay debts, make timely payments, and be a reliable customer or tenant.

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  • 5. 

    Which of the following is NOT an example of credit?

    • Home mortgage

    • Auto loan

    • Student loan

    • Debit card

    Correct Answer
    A. Debit card
    Explanation
    A debit card is not an example of credit because it allows the cardholder to make purchases using their own funds, directly from their bank account. Unlike credit cards, which allow users to borrow money and pay it back later, a debit card only allows for transactions using available funds in the account. Therefore, a debit card does not involve the extension of credit.

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  • 6. 

    In order to qualify for financial aid, prospective college students must file the:  

    • Financial Aid Letter

    • FAFSA

    • Credit Report

    • Magna Carta

    Correct Answer
    A. FAFSA
    Explanation
    To qualify for financial aid, prospective college students must file the FAFSA (Free Application for Federal Student Aid). This form is used to determine a student's eligibility for federal, state, and institutional financial aid programs. It collects information about the student's and their family's income, assets, and other factors to calculate their Expected Family Contribution (EFC). This information is then used by colleges and universities to determine the amount and type of financial aid the student is eligible to receive. Therefore, filing the FAFSA is crucial for students who need financial assistance to afford their college education.

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  • 7. 

    What is the best advice you can give a friend about using a credit card?

    • Pay the minimum payment each month on time

    • Pay the balance in full every month on time

    • Use your credit card to take out cash from ATM instead of your debit card since it is cheaper

    • Be sure to borrow up to your credit limit as it will help your credit score

    Correct Answer
    A. Pay the balance in full every month on time
    Explanation
    The best advice to give a friend about using a credit card is to pay the balance in full every month on time. By doing so, they can avoid accumulating interest charges and potential debt. Paying the balance in full also helps to maintain a good credit score, as it demonstrates responsible credit card usage and financial management.

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  • 8. 

    Jasmine has credit score of 750 and Bill's credit score is 550.  They are each seeking an auto loan of $10,000.  Which statement below is TRUE?

    • Bill and Jasmine will likely have the same interest rate as banks are forbidden to offer different interest rates on an auto loan.

    • Since Bill has a lower credit score, he will likely pay a lower interest rate on the loan.

    • Neither Bill nor Jasmine are likely to be approved for an auto loan given their low credit scores.

    • Since Jasmine has a higher credit score she is likely to pay a lower interest rate.

    Correct Answer
    A. Since Jasmine has a higher credit score she is likely to pay a lower interest rate.
    Explanation
    Credit scores are an important factor that lenders consider when determining interest rates for loans. A higher credit score indicates a lower risk for the lender, so Jasmine, with a credit score of 750, is likely to be offered a lower interest rate compared to Bill, who has a credit score of 550. Therefore, the statement "Since Jasmine has a higher credit score she is likely to pay a lower interest rate" is true.

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  • 9. 

    The gains from an investment in a company's STOCK that trades on a public exchange might include these two components:

    • Dividend and share price appreciation (rise in the stock price)

    • Return of principal and coupon

    • Dividend and coupon

    • Coupon and share price appreciation (rise in the stock price

    Correct Answer
    A. Dividend and share price appreciation (rise in the stock price)
    Explanation
    An investment in a company's stock that trades on a public exchange can generate gains through two components: dividends and share price appreciation. Dividends are periodic payments made by the company to its shareholders as a distribution of profits. Share price appreciation refers to the increase in the stock's value over time, allowing investors to sell their shares at a higher price than what they initially paid. These two components together contribute to the overall gains from the investment.

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  • 10. 

    The higher interest rate (APR) that most credit card companies charge to a cardholder after a late payment: 

    • Balance transfer APR

    • Penalty APR

    • Penalty fee

    • Cashback reward APR

    • Purchases APR

    Correct Answer
    A. Penalty APR
    Explanation
    The correct answer is Penalty APR. Credit card companies often charge a higher interest rate, known as Penalty APR, to cardholders who make late payments. This penalty APR is applied to the outstanding balance and can significantly increase the cost of carrying a balance on the credit card. It serves as a deterrent to encourage cardholders to make their payments on time.

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  • 11. 

    Which of the items below is NOT a rule for creating wealth for the long-term?

    • Start investing early

    • Invest over time and don't try and time the market

    • Invest all of your money in a bank savings account

    • Diversify your investments

    Correct Answer
    A. Invest all of your money in a bank savings account
    Explanation
    Investing all of your money in a bank savings account is not a rule for creating wealth for the long-term because bank savings accounts typically have low interest rates, which means that the returns on your investment will be minimal. In order to create wealth for the long-term, it is important to explore other investment options that have the potential for higher returns, such as stocks, bonds, real estate, or mutual funds. Diversifying your investments is also crucial to minimize risk and maximize potential gains.

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  • 12. 

    SELECT TWO ANSWERS.  The two most important factors in determining your credit score are:  

    • Amounts owed

    • Length of credit history

    • Types of credit used

    • Payment history

    Correct Answer(s)
    A. Amounts owed
    A. Payment history
    Explanation
    The two most important factors in determining your credit score are the amounts owed and payment history. The amounts owed refers to the total amount of debt you have, including credit card balances, loans, and mortgages. This factor takes into account your credit utilization ratio, which is the percentage of available credit you are using. A high credit utilization ratio can negatively impact your credit score. Payment history refers to how consistently you have made your payments on time. Late or missed payments can significantly lower your credit score. These two factors are key indicators of your financial responsibility and can greatly impact your creditworthiness.

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  • 13. 

    InvestmentPurchase PriceCurrent PriceReturn (%age)Apple$100$110?????Facebook$70$80????S&P500$200$210????You have three stocks that you bought earlier this year.  You are looking at their current prices and curious as to how the stocks have performed relative to each other.  You are using their percentage return as your measurement tool.  Rank order the stocks from HIGHEST return to LOWEST return.  Remember to calculate the percentage return for each stock to arrive at your answer.  WebRep currentVote  noRatingnoWeight           

    • Apple, Facebook and S&P500 all had the same percentage return

    • Apple, Facebook, S&P500

    • Facebook, S&P500, Apple

    • Facebook, Apple and S&P500

    Correct Answer
    A. Facebook, Apple and S&P500
    Explanation
    The correct answer is Facebook, Apple, and S&P500. This is because the stocks are ranked in descending order based on their percentage return. Since the question states that all three stocks had the same percentage return, the order is determined by their original purchase price. Since Facebook had the lowest purchase price, it has the highest return, followed by Apple and then S&P500.

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  • 14. 

    Through diversification, an investor is seeking to achieve stock market returns with lower risk. Which of the following investments would provide an investor with diversification?

    • Investing in a single company’s stock

    • Investing in a single company’s bonds

    • Putting your money in a savings account

    • Buying an S&P500 index fund

    Correct Answer
    A. Buying an S&P500 index fund
    Explanation
    Buying an S&P500 index fund would provide an investor with diversification. An index fund is a type of mutual fund that aims to replicate the performance of a specific market index, in this case, the S&P500. The S&P500 is a stock market index that includes 500 large companies listed on the US stock exchanges. By investing in an S&P500 index fund, an investor gains exposure to a wide range of companies across various sectors, which helps to spread the risk. This diversification can potentially lower the overall risk of the investment while still seeking stock market returns.

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  • 15. 

    Select ALL the answers that apply.  Which of the following represent "free money" sources that can help you pay for college that never need to be repaid?  

    • Subsidized federal student loans

    • Pell Grants

    • Private loans

    • Other grants provided by the college/university

    • College scholarships

    Correct Answer(s)
    A. Pell Grants
    A. Other grants provided by the college/university
    A. College scholarships
    Explanation
    The correct answers are Other grants provided by the college/university, Pell Grants, and College scholarships. These sources of funding do not need to be repaid and can help students pay for their college expenses. Subsidized federal student loans and private loans, on the other hand, are types of financial aid that need to be repaid with interest.

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Quiz Review Timeline (Updated): Mar 21, 2023 +

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  • Current Version
  • Mar 21, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Jul 17, 2015
    Quiz Created by
    Tranzetta
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