ConEd Review Written Portion 9-11

Debit v. Credit (prompt is on study guide)

In my opinion, credit cards are the better choice because they offer the opportunity to build a strong credit history, which is fundamental for long-term financial success. While the risk of debt is real, responsible usage, including paying balances in full and on time, reduces the risk and allows one to benefit from rewards and superior fraud protection. Therefore, learning to manage credit effectively is a more valuable skill for the future financial well-being than relying solely on debit.

What are two things you can do to raise your Credit Score?

1. Pay your bills on time

2. Getting a pre-approved credit card offer

What are two things you can do to lower your Credit Score?

1. Credit card applications

2. Auto loan applications

What are some (at least three) problems you will face with a poor credit score? Explain why they would be impacted by a poor credit score

Difficulty getting loans or credit cards– Lenders see you as higher risk, so they might deny your application or offer very high interest rates.

Trouble Finding Housing– Landlords and mortgage lenders often check credit scores to gauge financial responsibility. A low score can lead to rejection or require a large deposit.

Needing security deposits for services– Companies providing utilities or cell phone plans might ask for a deposit upfront because a poor credit score suggests a higher chance of missed payments.

What are the 5 factors that go into determining your credit score? You will be asked to have them listed in order of the impact they have on your score, from largest to smallest, by %. You should briefly describe them in about 2 sentences each

Payment History (35%;The record of how consistently you make payments on your credit accounts on time. You should make the payments on time to keep a positive payment history.)

Credit Utilization (30%;The percentage of your available credit that you’re using at any given time. It will help if you keep your credit utilization below 30%.)

Length of Credit History (15%;Consider how long your credit accounts have been open. Your credit history will naturally lengthen as you continue to use credit.)

Types of Credit (10%;Having a mix of different types of credit accounts can positively impact your credit score. Don’t open new accounts just to have a mix.)

New Credit Accounts (10%;Every time you apply for a new credit, a “hard inquiry” is made on your credit report. Be careful applying for multiple credit cards or loans in a short period of time)

Define what a Mortgage is

a loan towards the purchase of real estate

What a good or bad credit score could do to the cost of the mortgage

Higher Score=Lower monthly payment-low interest rate

Lower Score=Higher monthly payment-high interest rate

What the two major types (15 and 30 YEAR)

15 Year: Shorter Loan Term, Lower Interest Rate, Higher Monthly Payment, Harder To Pay Off With Budget Issues

30 Year: Lower Monthly Payment, Easier To Pay With Budget Issues, Lower Loan Term, Higher Interest Rate

What is a subprime mortgage. How did this lead to the 2008 Financial Crisis?

Higher interest rate mortgage loans made to people with poor credit scores; The subprime mortgages collapsed because too many people defaulting (not paying mortgages)

What are defaulting and foreclosure

Defaulting: Failing to pay back a loan ON TIME

Foreclosure: You aren’t able to make the payments, the house is taken