Credit and Debit Quiz

The primary difference between a debit card and a credit card

A debit card deducts funds directly from a checking account, while a credit card borrows funds against a line of credit

Credit Score

A measure of how believable it is that you will pay back borrowed money

What factors affect credit scores

Payment history, amounts owed, length of credit history, credit mix, and new credit

How to maintain a good credit score

Pay bills on time and use credit responsibly

Secured credit card

A credit card for which guardians are responsible but has your name; used to help build credit history

Credit score breakdown

35%: payment history; 30%: amounts owed; 15%: length of credit history; 10%: credit mix; 10%: new credit

Credit mix

The variety of credit accounts you have, contributing to 10% of your credit score

Pros of using credit cards

They provide extra time to pay, make large purchases easier, offer convenience for emergencies, and may include rewards

Cons of using debit cards

No protection for purchases and potential difficulty in disputing transactions

What is the importance of monitoring your credit score?

It empowers consumers and affects approval for credit by issuers

Cons of using credit cards

If not used mindfully, it’s easy to get into a debt trap

Pros for using debit cards

Avoid increasing debt, you can pay now rather than getting billed later, and you have easy access to cash (ATM)

Where does credit come from?

When you borrow money from a bank or CC company, your actions are reported to TransUnion, Experian, and/or Equifax and then they use an algorithm used by FICO that gives you a score from 300-850.

When is credit checked?

By loaners, landlords, employers, and utility companies when they are deciding whether/how to work with you

Good practices for using both credit and debit cards

Have both and use each at the right times, pay CC in full to avoid interest, decline the overdraft protection on DC, compare CCs before choosing, monitor your credit score, pre-qualify and apply for credit cards

When to use debit cards

For ATM cash withdrawals and if you are carrying a credit balance other than $0

When not to use debit cards

Don’t use them day to day, at ATMs that you DO NOT trust, and/or if you have a $0 balance on last statement

What to consider when comparing credit cards

Annual fees, Purchase APR (annual interest percentage rates), rewards programs, fees, customer service ratings