Money Smart Quiz: Borrowing & Credit

Multiple-Choice Questions

1. What is credit?
A) A plastic card issued by your bank
B) The use of someone else's money for a fee
C) A record of your bill payment history
D) A federal application for student aid

2. Which of the following is NOT one of the four items used to assess creditworthiness?
A) Capacity
B) Character
C) Collateral
D) Cash

3. What is the key difference between a credit card and a debit card?
A) A credit card can only be used online
B) A debit card takes money directly from your bank account, while a credit card involves borrowed money that must be repaid
C) A debit card charges interest, but a credit card does not
D) There is no real difference between the two

4. What does FAFSA stand for?
A) Federal Application for Student Financial Assistance
B) Free Application for Federal Student Aid
C) Financial Aid for Federal Student Applicants
D) Federal Aid for Family Student Assistance

5. According to the resource, which of the following can cause bad credit?
A) Paying off a credit card balance in full each month
B) Missing or making late payments
C) Using a debit card for purchases
D) Applying for FAFSA

6. What does the Credit CARD Act of 2009 require for anyone under 21 who wants a credit card?
A) They must be enrolled in college
B) They must have a qualified co-signer or prove they can repay debt alone
C) They must have a job
D) They must have a credit score above 700

7. What happens to a co-signer if a teen fails to make credit card payments?
A) Nothing—the credit card company absorbs the cost
B) The co-signer is obligated to pay the debt and their own credit report can be damaged
C) The teen's credit card is automatically canceled
D) The co-signer's credit score automatically improves

8. Which of the following is an example of student aid that does NOT have to be repaid?
A) Student loans
B) Work-study programs
C) Grants and scholarships
D) Credit cards

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Short-Answer Questions

9. Using the example from the resource, if someone pays $200/month for a car loan and $1,000/month for a home loan, and has a monthly gross income of $4,000, calculate their debt-to-income ratio. Show your work.

10. Explain why a high debt-to-income ratio might concern a lender.

11. Describe two ways a family could reduce the amount of money a teen needs to borrow for college, according to the resource.

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Answer Key

1. B
2. D
3. B
4. B
5. B
6. B
7. B
8. C

9. Total monthly debt = $200 + $1,000 = $1,200. Debt-to-income ratio = $1,200 ÷ $4,000 = 30%.

10. A high debt-to-income ratio signals to lenders that a borrower may struggle to meet monthly repayments, making them appear less creditworthy.

11. Accept any two of the following: investigating scholarships, grants, and work-study programs; comparing college costs using resources like College Scorecard; applying for federal financial aid through FAFSA.