Knowledge check

Knowledge check — Unit 3

Four questions on credit and debt. You need 75% to pass, and you can retake it as many times as you like.

1. Which factor weighs most heavily in a credit score? Your income Payment history How many cards you hold Your age

Show the explanation

Payment history is the single largest factor. Income is not part of the score at all.

2. You have a $1,000 limit and a $250 balance. Your utilization is: 4% 25% 40% 250%

Show the explanation

250 divided by 1,000 is 25% — under the commonly cited 30% guideline.

3. What makes compound interest different from simple interest? It is always lower Interest is charged on the balance plus previously added interest It only applies to savings It is fixed by law

Show the explanation

Compounding means interest earns or costs interest. Over long periods that difference dominates.

4. Why does starting to save at 18 rather than 30 matter so much? Younger people get better rates Twelve extra years of compounding does a large share of the work Banks reward young savers Taxes are lower under 25

Show the explanation

Time is the strongest input. Early contributions compound for far longer than later, larger ones.