TYPES OF CREDIT EXAM
QUESTIONS WITH
COMPLETE SOLUTIONS
Collateral - Answer-Something valuable that the lender can take as payment if you can't
pay back your loan (like a house or car)
Co-signer - Answer-Someone who legally agrees to take responsibility for a person's
debt if they cannot repay it
Installment loan - Answer-Loan used to finance a specific purchase for a specific
amount of time; regular payments pay the interest and portion of the principal
Revolving credit - Answer-Open line of credit that can be used for any purchases as
long as you're under the limit; payments vary monthly based on size of the debt
Secured debt - Answer-Debt tied to a specific tangible asset that can be used as
collateral and reposed if payments are no tmade
Unsecured debt - Answer-Debt NOT tied to a specific asset or that cannot be
repossessed if payments are not made
Variable-rate loan - Answer-Interest rate can change, based on prime rate or index rate,
over the course of the loan
Fixed-rate loan - Answer-Interest rate is determined before loan is granted and remains
constant as long as ontime payments are being made
Amortization - Answer-The paying off of debt with a fixed repayment schedule in regular
installments over a period of time
Credit Union - Answer-A member-owned financial co-operative. These institutions are
similar to banks, except they are created and operated by their members and profits are
shared amongst the owners.
Micro Credits - Answer-An extremely small loan given to impoverished people to help
them become self employed.
, Debit Card - Answer-A payment card that deducts money directly from a consumer's
checking account to pay for a purchase.
Unlike credit cards, they do not allow the user to go into debt, except perhaps for small
negative balances that might be incurred if the account holder has signed up for
overdraft coverage.
Credit Card - Answer-A card issued by a financial company giving the holder an option
to borrow funds. Credit cards charge interest and are primarily used for short-term
financing. Interest usually begins one month after a purchase is made and borrowing
limits are pre-set according to the individual's credit rating.
Cash Back - Answer-A cardholder benefit offered by some credit card companies that
pays the cardholder a small percentage of their net expenditures (purchases less
refunds). Cash back benefits often provide the cardholder with the opportunity to
choose from taking the cash, or using the "points" for purchases, travel (as with miles
awards for air travel) or gift cards.
Joint Account - Answer-A bank or brokerage account that is shared between two or
more individuals. Joint accounts are most likely to be used between relatives, couples
or business partners who have a level of familiarity and trust for each other, as this type
of account typically allows anyone named on the account to access funds within it.
Authorized User - Answer-A person who has permission to use and/or carry another
person's credit card, but isn't legally responsible for paying the bill.
Secured Credit Card - Answer-A type of credit card that is backed by a savings account
used as collateral on the credit available with the card. Money is deposited and held in
the account backing the card.
Default - Answer-The failure to promptly pay interest or principal when due. Borrowers
may default when they are unable to make the required payment or are unwilling to
honor the debt.
Home Equity - Answer-The value of ownership built up in a home or property that
represents the current market value of the house less any remaining mortgage
payments. This value is built up over time as the property owner pays off the mortgage
and the market value of the property appreciates.
Home-Equity Loan - Answer-A consumer loan secured by a second mortgage, allowing
home owners to borrow against their equity in the home.
Credit - Answer-Any arrangement where you get "stuff" (money, goods, services), and
agree to pay for it in the future
Loan - Answer-An agreement where you are credited with a fixed amount (usually of
money) for a fixed period of time, usually with interest
QUESTIONS WITH
COMPLETE SOLUTIONS
Collateral - Answer-Something valuable that the lender can take as payment if you can't
pay back your loan (like a house or car)
Co-signer - Answer-Someone who legally agrees to take responsibility for a person's
debt if they cannot repay it
Installment loan - Answer-Loan used to finance a specific purchase for a specific
amount of time; regular payments pay the interest and portion of the principal
Revolving credit - Answer-Open line of credit that can be used for any purchases as
long as you're under the limit; payments vary monthly based on size of the debt
Secured debt - Answer-Debt tied to a specific tangible asset that can be used as
collateral and reposed if payments are no tmade
Unsecured debt - Answer-Debt NOT tied to a specific asset or that cannot be
repossessed if payments are not made
Variable-rate loan - Answer-Interest rate can change, based on prime rate or index rate,
over the course of the loan
Fixed-rate loan - Answer-Interest rate is determined before loan is granted and remains
constant as long as ontime payments are being made
Amortization - Answer-The paying off of debt with a fixed repayment schedule in regular
installments over a period of time
Credit Union - Answer-A member-owned financial co-operative. These institutions are
similar to banks, except they are created and operated by their members and profits are
shared amongst the owners.
Micro Credits - Answer-An extremely small loan given to impoverished people to help
them become self employed.
, Debit Card - Answer-A payment card that deducts money directly from a consumer's
checking account to pay for a purchase.
Unlike credit cards, they do not allow the user to go into debt, except perhaps for small
negative balances that might be incurred if the account holder has signed up for
overdraft coverage.
Credit Card - Answer-A card issued by a financial company giving the holder an option
to borrow funds. Credit cards charge interest and are primarily used for short-term
financing. Interest usually begins one month after a purchase is made and borrowing
limits are pre-set according to the individual's credit rating.
Cash Back - Answer-A cardholder benefit offered by some credit card companies that
pays the cardholder a small percentage of their net expenditures (purchases less
refunds). Cash back benefits often provide the cardholder with the opportunity to
choose from taking the cash, or using the "points" for purchases, travel (as with miles
awards for air travel) or gift cards.
Joint Account - Answer-A bank or brokerage account that is shared between two or
more individuals. Joint accounts are most likely to be used between relatives, couples
or business partners who have a level of familiarity and trust for each other, as this type
of account typically allows anyone named on the account to access funds within it.
Authorized User - Answer-A person who has permission to use and/or carry another
person's credit card, but isn't legally responsible for paying the bill.
Secured Credit Card - Answer-A type of credit card that is backed by a savings account
used as collateral on the credit available with the card. Money is deposited and held in
the account backing the card.
Default - Answer-The failure to promptly pay interest or principal when due. Borrowers
may default when they are unable to make the required payment or are unwilling to
honor the debt.
Home Equity - Answer-The value of ownership built up in a home or property that
represents the current market value of the house less any remaining mortgage
payments. This value is built up over time as the property owner pays off the mortgage
and the market value of the property appreciates.
Home-Equity Loan - Answer-A consumer loan secured by a second mortgage, allowing
home owners to borrow against their equity in the home.
Credit - Answer-Any arrangement where you get "stuff" (money, goods, services), and
agree to pay for it in the future
Loan - Answer-An agreement where you are credited with a fixed amount (usually of
money) for a fixed period of time, usually with interest
