Gov Final

According to the 50/30/20 budgeting rule, what percentage of your take home pay should go toward needs such as rent, utilities, and groceries?

50%

Where should an emergency fund ideally be kept?

High-Yield Savings Account (HYSA)

A "sinking fund" is best defined as:

Savings set aside for a specific, expected future expense (e.g., holiday gifts, car repairs).

What does APR stand for?

Annual Percentage Rate (the yearly interest rate charged on debt).

What is a credit utilization rate?

The percentage of your total available credit limit currently being used.

What is the recommended maximum credit utilization ratio to maintain a healthy credit score?

Below 30% (under 10% is best).

What are dangerous features of a "deferred interest" promotional offer on a retail store card?

Retroactive interest is charged on the original full purchase amount if the balance isn't paid off completely by the deadline.

What is the difference between a hard inquiry and a soft inquiry on your credit report?

Hard inquiries are done by lenders for loans and lower your score; soft inquiries are for background/self

What is the range of FICO credit scores?

300 to 850

Which of the five FICO factors carries the most weight in your credit score calculation?

Payment History (35%)

What actions would directly improve the "Length of Credit History" factor in your FICO score?

Keeping your oldest credit card accounts open and active.

Priya has one credit card with a $1,000 limit and a $650 balance. She is considering closing the account because she rarely uses it. What are the consequences?

Her score will drop because her available credit disappears, causing her credit utilization to spike.

Which of the following is TRUE about income and credit scores?

Income has zero impact on credit scores.

According to FICO data, consumers with the highest credit scores opened their first credit account an average of how many years ago?

25 years ago

What is a credit builder loan, and how does it differ from a traditional loan?

Unlike a traditional loan that gives cash upfront, a credit-builder loan holds the money in a locked account until you pay it off, purely to build credit history.

What debt do you pay off first when using the Avalanche Method?

The debt with the highest interest rate.

What debt do you pay off first when using the Snowball Method?

The debt with the smallest balance.

Why might the Snowball Method be more effective than the Avalanche Method in practice, even though it costs more in total interest?

The fast "wins" of erasing small debts provide the psychological motivation to stay on track.

What is the state of American credit card debt?

It is at an all-time historic high of $1.25 trillion, with elevated interest rates.

What is the Snowball Method of debt repayment?

Paying the minimum on all debts except the smallest, throwing all extra cash at the smallest until it's gone, and then rolling that payment amount into the next smallest debt.