Personal Finance Credit and Debt Management Syllabus

Credit and Debt Management syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Credit and Debt Management in Personal Finance, not a summary of it.

1. 1

   Understanding Credit

   3 topics

   • What Is Credit and Why It Matters
   • Types of Credit
   • Cost of Credit
2. 2

   Credit Scores and Reports

   4 topics

   • Credit Score Factors
   • Reading Your Credit Report
   • Building and Improving Credit
   • Disputing Errors and Credit Freezes
3. 3

   Credit Cards

   4 topics

   • How Credit Cards Work
   • Choosing the Right Card
   • Responsible Card Use
   • Avoiding Credit Card Debt Traps
4. 4

   Loans and Borrowing

   4 topics

   • Mortgages
   • Auto Loans
   • Student Loans
   • Personal Loans and Lines of Credit
5. 5

   Debt Payoff Strategies

   5 topics

   • Debt Snowball Method
   • Debt Avalanche Method
   • Debt Consolidation and Refinancing
   • Negotiating with Creditors
   • Avoiding and Recovering from Bankruptcy

Credit and Debt Management flashcards for Personal Finance

24 of 50 cards from the Credit and Debt Management deck — real questions with worked answers.

1. What is credit?

   Credit is the ability to borrow money or access goods/services with the agreement to repay the lender at a later date, usually with interest.

2. Why does credit matter for a consumer's financial life?

   Credit affects the ability to borrow, the interest rates offered, approval for housing rentals and mortgages, insurance premiums, and even some employment decisions.

3. What is the difference between a creditor and a debtor?

   A creditor is the party that lends money or extends credit; a debtor is the party that borrows and owes repayment.

4. What are the four main types of credit?

   Revolving credit (e.g., credit cards), installment credit (e.g., auto/mortgage loans), open credit (e.g., utility bills paid in full), and service credit.

5. How does revolving credit differ from installment credit?

   Revolving credit has a flexible balance and reusable credit limit with variable payments (e.g., credit cards); installment credit is a fixed loan repaid in equal scheduled payments over a set term (e.g., car loans).

6. What is secured credit versus unsecured credit?

   Secured credit is backed by collateral the lender can seize on default (e.g., mortgage, auto loan); unsecured credit has no collateral and relies on creditworthiness (e.g., most credit cards, personal loans).

7. What is the principal of a loan?

   The principal is the original amount of money borrowed, not including interest or fees.

8. What is APR (Annual Percentage Rate)?

   APR is the yearly cost of borrowing expressed as a percentage, including the interest rate plus certain fees, making it a standardized measure to compare loan costs.

9. How is simple interest calculated?

   $$I = P \times r \times t$$ where $P$ is principal, $r$ is the annual interest rate, and $t$ is time in years.

10. What is the compound interest formula for a balance growing over time?

    $$A = P\left(1 + \frac{r}{n}\right)^{nt}$$ where $A$ is the final amount, $P$ the principal, $r$ the annual rate, $n$ the compoundings per year, and $t$ the years.

11. How do you convert an APR to a monthly periodic interest rate?

    Divide the APR by 12: monthly rate $= \frac{\text{APR}}{12}$. For example, a $24\%$ APR gives a $2\%$ monthly rate.

12. What is the difference between APR and APY?

    APR is the simple annual rate ignoring intra-year compounding; APY (Annual Percentage Yield) reflects compounding: $$\text{APY} = \left(1 + \frac{r}{n}\right)^{n} - 1.$$

13. What is a finance charge?

    A finance charge is the total dollar cost of using credit, including interest and any fees such as service or transaction charges.

14. What are the five main factors that make up a FICO credit score, and their approximate weights?

    Payment history ($35\%$), amounts owed/credit utilization ($30\%$), length of credit history ($15\%$), new credit/inquiries ($10\%$), and credit mix ($10\%$).

15. What is the typical range of a FICO credit score?

    FICO scores range from $300$ to $850$, with higher scores indicating lower credit risk.

16. What is credit utilization ratio and how is it calculated?

    It is the percentage of available revolving credit being used: $$\text{Utilization} = \frac{\text{Total balances}}{\text{Total credit limits}} \times 100\%.$$ Keeping it below $30\%$ is generally recommended.

17. Which single factor has the largest impact on a FICO score, and what does it measure?

    Payment history ($35\%$), which measures whether you have paid past credit accounts on time.

18. What is the difference between a hard inquiry and a soft inquiry?

    A hard inquiry occurs when you apply for new credit and can slightly lower your score; a soft inquiry (e.g., checking your own score or a pre-approval) does not affect your score.

19. What is a credit report?

    A credit report is a detailed record of your credit history compiled by credit bureaus, including accounts, balances, payment history, inquiries, and public records.

20. What are the three major U.S. credit bureaus?

    Equifax, Experian, and TransUnion.

21. How often can you obtain a free copy of your credit report from each major bureau?

    Under U.S. law you are entitled to at least one free report annually from each of the three bureaus via AnnualCreditReport.com (weekly free access has also been offered).

22. What key sections appear on a typical credit report?

    Personal identifying information, credit accounts (tradelines), credit inquiries, public records/collections, and sometimes a dispute section.

23. How long do most negative items, such as late payments, stay on a credit report?

    Most negative items remain for about 7 years; Chapter 7 bankruptcy can stay for up to 10 years.

24. Name three effective ways to build or improve a credit score.

    Pay all bills on time, keep credit utilization low (below $30\%$), and maintain older accounts to lengthen credit history. Other options include a secured card or becoming an authorized user.

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