Unit 2 Study guide

Question 1

Default

Answer 1

Failure to pay debt/other obligation.

Question 2

Diversification

Answer 2

Spreading your money among different investments to reduce the risk of losing it.

Question 3

Repossession

Answer 3

Things that were bought but not paid for are taken back.

Question 4

Bankruptcy

Answer 4

If somebody is unable to pay a loan or debt, they will file for bankruptcy to create a repayment plan.

Question 5

401 (k)

Answer 5

A retirement savings plan offered by employers.

Question 6

Roth IRA

Answer 6

A retirement plan that has no age restriction. It is contribution taxed but not withdrawal taxed.

Question 7

Lien

Answer 7

A right to keep property from someone until a debt is repayed.

Question 8

Garnishment

Answer 8

A persons earnings are withheld to satisfy a debt.

Question 9

Stock

Answer 9

A share of a company.

Question 10

What are the 3 C’s of credit?

Answer 10

Character, Capital, Capacity.

Question 11

Character

Answer 11

Your reputation as a reliable and trustworthy person. Example: Do you pay your bills on time?

Question 12

Capital

Answer 12

Your assets used as a guide to determine your ability to repay the debt. Example: Do you own things of value?

Question 13

Capacity

Answer 13

Your ability to pay back the loan. Example: Will you make enough to pay the debt?

Question 14

What percentage of your paycheck should go towards credit card payments?

Answer 14

10% - 12%

Question 15

What is the average American credit card debt?

Answer 15

$16,061

Question 16

What does a credit score measure?

Answer 16

The level of risk the company is taking by giving you a loan.

Question 17

Poor Credit Score

Answer 17

300-579

Question 18

Fair Credit Score

Answer 18

580-669

Question 19

Good Credit Score

Answer 19

670-739

Question 20

Very Good Credit Score

Answer 20

740-799

Question 21

Exceptional Credit Score

Answer 21

800-850

Question 22

How can a person improve their credit score?

Answer 22

Pay all bills/debts, and contact credit company and ask how to build it back up.

Question 23

The 3 Credit Reporting Agencies

Answer 23

Equifax, TransUnion, Experian

Question 24

What are 3 factors that determine credit history?

Answer 24

Payment History, Credit Utilization, Length of Credit HIstory/.

Question 25

If you only pay the minimum balance on your credit card each month, what will happen to it?

Answer 25

It will increase.

Question 26

What are 3 ways to avoid Idenity Theft?

Answer 26

1. Shred all papers with your information on them.
2. Don’t carry your social security card with you.
3. Use different passwords on all your accounts.

Question 27

What is the best wat to avoid going into a debt?

Answer 27

Paying all loans/bills on time.

Question 28

How long does Chapter 13 bankruptcy stay on your credit report?

Answer 28

7 years.

Question 29

How long does Chapter 7 bankruptcy stay on your credit report?

Answer 29

10 years.

Question 30

What is the purpose of investing?

Answer 30

To make money overtime, to make your money work for you.

Question 31

What is a mutual fund?

Answer 31

Made up of many investors and managed by a group of professionals. Your money is spread throughout various stocks and bonds. Reduced Risk.

Question 32

Government Bond

Answer 32

No risk and low return

Question 33

Corporate Bond

Answer 33

Moderate risk and moderate return

Question 34

Stocks

Answer 34

High risk and high return