Term 1 Exam Personal Finance

budgeting and credit

what is a key benefit of setting financial goals?

It helps in prioritizing spending and saving decisions

What is the primary purpose of making financial goals S.M.A.R.T.?

To create clear, measurable, and achievable objectives

What is the first step in setting financial goals?

Assess your current financial situation

Why is it important to set financial goals?

They provide direction, help measure progress, and reduce financial stress

How are variable expenses different from fixed expenses?

Variable expenses change frequently, while fixed expenses stay the same

What is the primary purpose of a personal budget?

To plan, track, and achieve financial goals

What is an example of a fixed expense?

Car insurance

what is NOT a recommended component to include in a personal budget?

Credit score

How does having financial goals reduce stress?

By ensuring you have a plan and feel in control of your finances.

What is a "net pay" in a budget?

The amount available after taxes are deducted

What is the purpose of having an emergency fund in your budget?

To take care of unplanned expenses

what best describes a financial goal?

Specific monetary objectives set to be achieved within a defined time frame

what best illustrates a short-term financial goal?

Saving $350 for a new snowboard within six months

Why is it important to prioritize financial goals?

To focus on the goals that matter most to your financial well-being

what is an example of a long-term financial goal?

Saving for retirement over the next 15 years

Which budgeting method involves assigning every dollar of your income to a specific purpose?

Zero-Based Budgeting

According to the 50/30/20 rule, what percentage of your income should be allocated to savings and debt repayment?

20%

Why is it recommended to create monthly budgets rather than longer-period budgets?

Monthly budgets allow for better tracking and adjustments

What is the primary difference between "credit" and "debt"?

Credit is the ability to borrow money, while debt is the amount of money borrowed

What does APR stand for, and what does it represent?

Annual Percentage Rate; it represents the cost of borrowing money on a credit card over one year.

Credit scores can range from ____________ to _________________

300-850

What is a secured credit card?

A credit card that requires a cash deposit as collateral 

When assessing a credit score, the ____________ the score, the _______________ the risk

Lower ; higher

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

30%

What is the most critical factor in determining your FICO credit score?

Payment history

Why is building a credit history important?

A good credit history makes it easier to obtain loans with favorable terms.

Which factor directly influences your ability to access credit by indicating the risk level to lenders?

Credit score

Which of the following is an example of revolving credit?

Credit card

Which type of credit requires the borrower to make equal monthly payments over a specified period?

Installment credit

What is one risk associated with using credit cards for everyday purchases?

It can lead to high-interest charges if the balance is not paid in full each month.

What is an example of unsecured debt

Credit card

A credit score of 350 would be considered

poor

What happens if you only pay the minimum payment on your credit card balance?

Interest will be charged on the remaining balance

Why is it advisable to keep old credit accounts open, even if you don't use them frequently?

To maintain a longer credit history

Which strategy is best for someone looking to build credit for the first time?

Use a secured credit card responsibly

What should you do if you find an error on your credit report?

File a dispute with the credit bureau

What is the grace period on a credit card?

The period where you can pay your balance without incurring interest charges.

An asset a borrower pledges to a lender as security for repayment of a loan.

collateral

A type of loan that is not backed by collateral and is granted based on the borrower’s creditworthiness.

unsecured debt

An individual or entity that lends money or extends credit to another, also called a lender.

creditor

A type of credit extended by a service provider, where the customer uses a service and pays for it at the end of the billing period, also called service credit.

open credit

Additional costs that credit card issuers charge their customers if they don't pay at least the minimum monthly payment amount on their credit card statement.

late fee

This occurs when a credit card balance is transfered from one card to another

balance transfer

The maximum amount of money that can be borrowed using the card at any given time

credit limit

A detailed report of a person's credit history prepared and maintained by Credit Reporting Agencies (also called Credit Bureaus).

credit report

The time during which a credit card holder can repay their balance without incurring interest charges.

grace period

A legal process wherein an individual or company, unable to fulfill their financial obligations, seeks relief from some or all their liabilities.

bankruptcy

he assessment of a borrower's ability to repay a loan based on their financial history and current financial status.

creditworthiness

A financial measure that compares an individual's monthly debt payments to their gross monthly income, indicating their ability to manage and repay debts.

debt-to-income ratio

A type of loan that is backed by collateral.

Secured debt

The potential loss due to a debtor's inability or unwillingness to repay money owed to the creditor.

Credit risk

A numerical representation of an individual's creditworthiness, calculated based on their credit history and more recent credit behaviors.

credit score

What distinguishes a credit card from a debit card?

A credit card allows you to borrow money for purchases, while a debit card draws money directly from your bank account.

Which type of credit is typically used for utility bills and requires payment at the end of the billing period?

open credit

Which of the following best describes a rewards credit card?

A card that provides points, cash back, or miles for purchases

What could be a consequence of missing credit card payments?

It could negatively impact your credit score

Credit card statements contain a ______________________ that shows all the applicable fees and costs associated the the card

Schumer Box

What is a late fee in terms of credit card payments?

A penalty charged for not paying at least the minimum payment by the due date.