Exercises: Credit Scores and Avoiding Credit Card Debt
Name the five main factors that make up a FICO credit score. Identify the two factors that usually have the largest effect on the score.
Name the five main factors that make up a FICO credit score. Identify the two factors that usually have the largest effect on the score.
Liam has a credit card with a limit of $\$1{,}500$ and a current balance of $\$450$. Calculate his credit utilization ratio as a percent. Is it below the commonly…
Liam has a credit card with a limit of $\$1{,}500$ and a current balance of $\$450$. Calculate his credit utilization ratio as a percent. Is it below the commonly recommended level of $30\%$?
What is a credit report? Name the three nationwide credit reporting agencies (credit bureaus). Explain how a consumer can check their reports for free and why doing so…
What is a credit report? Name the three nationwide credit reporting agencies (credit bureaus). Explain how a consumer can check their reports for free and why doing so is a good habit.
Olivia has two credit cards. Card A has a limit of $\$2{,}000$ and a balance of $\$1{,}200$. Card B has a limit of $\$3{,}000$ and a balance of $\$300$. Find her…
Olivia has two credit cards. Card A has a limit of $\$2{,}000$ and a balance of $\$1{,}200$. Card B has a limit of $\$3{,}000$ and a balance of $\$300$. Find her utilization on each card and her overall utilization. How much total would she need to pay down to bring her overall utilization to $30\%$?
A credit card has a balance of $\$2{,}400$ and an APR of $24\%$. The minimum payment is $2\%$ of the balance or $\$35$, whichever is greater. Find the minimum payment…
A credit card has a balance of $\$2{,}400$ and an APR of $24\%$. The minimum payment is $2\%$ of the balance or $\$35$, whichever is greater. Find the minimum payment for this month. Estimate the interest charged for one month by dividing the APR by 12. How much of the minimum payment reduces the balance? What does your answer show about paying only the minimum?
Ethan has two cards. Card X has a balance of $\$1{,}000$ at $28\%$ APR. Card Y has a balance of $\$600$ at $15\%$ APR. He can pay an extra $\$100…
Ethan has two cards. Card X has a balance of $\$1{,}000$ at $28\%$ APR. Card Y has a balance of $\$600$ at $15\%$ APR. He can pay an extra $\$100$ per month beyond the minimums. Explain which card he would target first under the avalanche method and which under the snowball method. Which method saves more interest, and why?
Priya has a credit score of 640. Her credit report shows a payment that was 45 days late, a credit utilization of $85\%$, an oldest account that is 2 years old, and…
Priya has a credit score of 640. Her credit report shows a payment that was 45 days late, a credit utilization of $85\%$, an oldest account that is 2 years old, and three credit card applications in the last two months. Rank these four items from most to least harmful to her score. Then design a plan with at least three strategies to become a lower-risk borrower, and explain the reasoning behind each strategy.
Daniel owes $\$3{,}000$ on a credit card with a $20\%…
Daniel owes $\$3{,}000$ on a credit card with a $20\%$ APR. Estimate the interest charged in one month. Suppose he pays only that amount each month. What happens to his balance over time? Now suppose he pays a fixed $\$150$ per month. How much of the first payment reduces the balance? Write a short argument with at least three strategies he can use to eliminate the debt and avoid new credit card debt.