Questions and Answers
What do banks and lenders use credit scores to determine?
The likelihood that someone is able to repay debt.
A credit score is an indicator of how well someone pays off their debt, not how well they handle money.
True
What gives predatory lenders their negative reputation?
Charging high fees for loans and targeting desperate people.
Your greatest tool to building wealth is?
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What is the best way to avoid falling into debt?
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Credit card companies charge stores a 2-3% fee for every purchase made with credit cards. What is this called?
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Credit card companies make the most profit from?
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When a homeowner takes out a home equity line of credit (HELOC), that loan can only be used for home repairs and renovations.
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What should you ensure when looking over your credit report?
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What happens if you go over the pre-established mileage cap in a car lease agreement?
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Who do credit card companies and lenders primarily make money for?
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There are certain things, like renting a car or booking a hotel room, that you cannot do without having a credit card.
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Leasing a car is a method of financing where someone?
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The ______ is the total amount of the car loan, plus taxes and fees.
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What do credit card commercials often not show you?
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Which part of the formula determines a person's FICO score?
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What is an example of an appreciating asset?
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Loans that directly help you advance in life, such as student loans, are acceptable debts.
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Making purchases with a credit card means that you're borrowing money with interest, and _____ pay much higher interest rates.
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What does the debt snowball method involve?
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Credit cards that offer flashy rewards like airline miles often?
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______ require the borrower to put up collateral for the loan.
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The smartest way to buy a car is to?
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When you buy with credit, you typically spend more than you would with cash or a debit card.
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A car is a depreciating asset.
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While it may not always appear so, the majority of Americans live paycheck to paycheck.
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When you finance a new car, you will end up paying more than the sticker price.
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Once you turn 18, you should regularly check your credit report for?
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How you spend and give your money is a reflection of?
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What is The Second Foundation?
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Explain why debt and credit are a bad idea.
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What is the danger of putting up collateral for a loan?
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Explain why the importance of a good credit score is a myth.
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List three ways the credit card industry makes money off of customers.
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What is the difference between an appreciating asset and a depreciating asset?
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Describe marketing tactics that the credit industry uses to trick people into getting into debt.
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Explain the debt snowball method. How can it help you get out of debt?
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Study Notes
Credit Scores and Lending
- Credit scores assess the likelihood of debt repayment, crucial for banks and lenders.
- A credit score reflects debt repayment history, not overall money management skills.
Predatory Lending and Debt Management
- Predatory lenders gain a negative reputation due to high fees and targeting vulnerable individuals.
- Building wealth primarily relies on income rather than credit.
Avoiding Debt and Responsible Credit Use
- Avoid debt by making purchases only with cash.
- Credit card companies charge merchants a 2-3% fee per transaction known as a merchant fee.
Profit Sources and Risks of Credit Cards
- Credit card companies benefit most from interest charged to customers carrying balances.
- Home Equity Lines of Credit (HELOCs) can be used for a variety of purposes, not just home repairs.
Credit Report Vigilance
- It's essential to check your credit report for unauthorized lines of credit.
Car Leasing and Ownership
- Car leases have penalties for exceeding mileage limits.
- Credit is a profit-driven business model, benefiting credit card companies, banks, and lenders.
Misconceptions about Credit and Debts
- Renting a car or booking a hotel can be done without a credit card.
- Leasing involves monthly payments without ownership transferring to the lessee.
Financial Literacy and Purchasing
- The total car loan amount includes principal, taxes, and fees.
- Credit card commercials often omit the reality of long-term repayment burdens.
FICO Scores and Asset Devaluation
- FICO scores are influenced significantly by your repayment history.
- Appreciating assets, like homes, increase in value, while cars depreciate over time.
Debt Evaluation
- Not all debts, even student loans, are considered acceptable; they can burden financial growth.
- Using credit for purchases incurs higher costs than paying with cash or debit cards.
Personal Financial Management
- Many Americans live paycheck to paycheck, indicating widespread financial fragility.
- Financing a car typically results in total payments exceeding the sticker price.
Importance of Credit Management
- Regularly check credit reports post-18 for errors and identity fraud signs.
- Financial habits reflect personal values concerning spending and giving.
Debt Prevention Foundations
- The Second Foundation emphasizes living debt-free.
- Debt's negative impact includes hindering savings, investments, and overall wealth growth.
Collateral Risks
- Offering collateral for loans risks losing valuable assets if unable to repay.
Credit Score Myths
- Good credit scores do not necessarily equate to financial success; alternatives exist regardless of score.
Credit Card Revenue Streams
- The credit card industry profits from interest, annual fees, and late payment charges.
Asset Value Dynamics
- Distinguish between appreciating assets (e.g., homes) which gain value and depreciating assets (e.g., cars) which lose value.
Marketing Tactics in Credit Industry
- Credit companies use enticing offers to lure customers, but long-term costs often surpass initial savings.
Debt Repayment Strategies
- The debt snowball method encourages focusing on smaller debts first, preventing overwhelm and facilitating gradual debt clearance.
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Description
This quiz covers essential topics related to credit scores, lending, and responsible credit management. It explores the implications of credit scores on debt repayment, the role of predatory lending, and strategies for avoiding debt. Additionally, it delves into the benefits and risks of credit cards and the importance of monitoring credit reports.
