final personal finance test

What is credit?

The ability to borrow money and pay it back later

What type of lenders should you avoid?

Predatory lenders like payday loan companies

What is closed-ended credit?

Credit borrowed for a set amount and time

What does revolving/open-ended credit mean?

You can borrow repeatedly up to a limit

What is APR?

Annual Percentage Rate; yearly cost of borrowing

What does the term of a loan mean?

The length of time to repay the loan

Longer loan terms mean

More interest paid overall

Why get a credit card?

Build credit and make purchases conveniently

What is a credit limit?

The maximum amount you can borrow

Why is good credit important?

It helps you qualify for loans and lower interest rates

How can you build credit with a parent/guardian?

Become an authorized user on their card

How can you build credit without a parent/guardian?

Get a secured credit card

What does collateralized mean?

The loan is backed by property or assets

What is a mortgage?

A loan used to buy a house

Common mortgage terms

15 years and 30 years

Common auto loan terms

36, 48, 60, or 72 months

Most common student loan term

10 years

Fixed-rate loan

Interest rate stays the same

Variable-rate loan

Interest rate can change over time

How are interest rates determined?

Based on credit score, risk, and market rates

How do credit cards affect businesses?

Businesses pay transaction fees

What else do credit card companies track?

Spending habits to market products and assess risk

Average credit card APR in 2025

Around 20%–25%

What is a credit card balance?

The amount currently owed

Do companies want you to carry a balance?

Yes, because they earn interest

Why raise your credit limit?

It encourages more spending and interest charges

What is a cash advance?

Borrowing cash from a credit card with extra fees and interest

Consequence of paying minimum payment only

Pay more interest and stay in debt longer

Which cards often have annual fees?

Rewards and travel credit cards

If balance is fully paid monthly

Is no interest charged

What are the three C’s of credit?

Character, capacity, and collateral

What do credit bureaus do?

Track credit history and create credit reports

What affects credit score?

Payment history, utilization, age, mix, inquiries

Credit utilization percent

30% of score

Payment history percent

35% of score

Length of credit history percent

15% of score

Types of credit percent

10% of score

New credit inquiries percent

10% of score

Why is the Truth in Lending Act important?

Requires lenders to clearly disclose loan terms

What did the Equal Credit Opportunity Act do?

Prevented discrimination in lending

What did the Credit CARD Act change?

Added protections for credit card users

What is debt-to-credit ratio?

Amount of credit used compared to total available

What is amortization?

Paying off debt through scheduled payments over time

Avalanche method

Pay highest interest debt first

Snowball method

Pay smallest debt first

What do credit counseling services do?

Help manage debt and budgeting

Goal of bankruptcy

Get relief from overwhelming debt

Two methods of bankruptcy

Chapter 7 and Chapter 13

What is insurance?

Protection against financial loss

What does transfer of risk mean?

The insurance company takes on financial risk

What is a premium?

The amount paid for insurance

What is a deductible?

The amount you pay before insurance helps

What is coverage limit?

The maximum insurance will pay

Low premium means deductible is

Usually higher

Who pays after deductible is met?

The insurance company

Car vs health deductibles

Car deductibles apply per accident; health deductibles yearly

What is an out-of-pocket maximum?

Most you pay in a year before insurance covers 100%

What is a co-pay?

A fixed amount paid for medical services

Virginia minimum auto insurance 2026

30/60/20

What do 30/60/20 mean?

$30k injury per person, $60k per accident, $20k property damage

Liability insurance covers

Damage or injuries you cause to others

Collision coverage covers

Damage to your car from crashes

Comprehensive coverage covers

Theft, weather, fire, vandalism, animals

Medical coverage covers

Medical expenses from accidents

Uninsured motorist coverage covers

Accidents caused by drivers without enough insurance

How long can you stay on parents’ insurance?

Until age 26

What is an HMO?

Health plan requiring network doctors and referrals

What is a PPO?

Health plan with more provider flexibility

What is a HDHP?

High deductible health plan

What is an HSA?

Account used to save money tax-free for medical costs

What is actuarial value?

Percent of costs insurance is expected to cover

How do most Americans get health insurance?

Through employers

What is the health insurance marketplace?

Website to compare and buy health plans

What law changed health insurance significantly?

Affordable Care Act

What is preventative care?

Care to prevent illness like checkups and vaccines

What does renter’s insurance cover?

Personal belongings and liability

Average renter’s insurance cost

About $15–$30 per month

What does homeowner’s insurance cover?

Home structure, belongings, and liability

What is not covered by homeowner’s insurance?

Floods and earthquakes usually

What is a personal property rider?

Extra coverage for valuable items

Replacement value vs cash value

Replacement pays new cost; cash value subtracts depreciation

Purpose of life insurance

Provide money to beneficiaries after death

What is term life insurance?

Coverage for a specific number of years

What is whole life insurance?

Permanent life insurance with savings component

Which life insurance has cash value?

Whole life insurance

How does a 50/30/20 budget work?

50% needs, 30% wants, 20% savings/debt

How does zero-based budgeting work?

Every dollar is assigned a purpose

What is the envelope method?

Using cash envelopes for spending categories

What is a security deposit?

Money held for damages; benefits landlord

What is a pet fee?

Nonrefundable fee for pets

What is a pet deposit?

Refundable deposit for pet damages

What is pet rent?

Monthly fee for having pets

What is an application deposit?

Fee holding a rental unit; benefits landlord

Examples of utilities

Electricity, water, gas, internet

Utilities are what type of expense?

Usually variable expenses

Largest monthly utility bill

Often electricity or heating/cooling

What is equal billing?

Average utility payments year-round

Groceries for one person yearly

About $3,000–$4,000

Groceries for family of three yearly

About $8,000–$10,000

Groceries for family of four yearly

About $10,000–$12,000