You are 22 years old, unmarried, have no children, and a take-home pay of $2,500 per month. You depended on your parents while attending college. You are engaged to be married in 18 months. You have very little credit history, but want to establish a good credit rating so that you may be able to rent/buy a home and qualify for low-cost loans when you buy a new car or appliance. You also want to be able to qualify for credit cards with good reward programs and low fees and interest rate.

Read each statement below and indicate whether it is a good or bad reason for using debt.

Statement	Bad reason	Good reason
You have unused credit available on your credit card.
The habit of buying on credit can lead to overspending and overindebtedness.
Debt provides protection against rip-offs and fraud.
Debt provides the means to purchase big ticket products sooner rather than later.
Debt provides financial flexibility and convenience when making payments.

When is the use of borrowed money for an education justified?

When the investment is expected to generate additional income that is less than the cost of the education.

When the required repayments can be postponed for many years

When the education will maintain your current quality of life

When the cost of the student loan is less than the interest rate on your credit cards.

When the cost of your education is less than the estimated additional income that the education is expected to provide

Which of the following is true regarding setting personal debt limits? Check all that apply.

The debt limit according to the continuous-debt method is a four-year payoff period.

For most people, your debt limit should be lower than what creditors are willing to offer.

Under the debt-to-income method, the recommended maximum debt limit should be 50%.

Your mortgage loan and all credit card charges, especially those paid in full every month, are included in the debt payments-to-disposable income method.

It is recommended the debt limit of a two-income household be based on .

Place the following items in order of most to least weight on your FICO score. Items that are of equal weight should be listed in alphabetical order.

Taking on more debt
Length of credit history
Types of credit used
Amounts owed
Payment history

Which of the following statements regarding the credit utilization ratio are true? Check all that apply.

The Fair Isaac Corporation believes that a borrower should not maintain a balance that is greater than 30% of the credit limit of a single credit card.

The purpose of the credit utilization ratio is to identify how heavily a borrower relies on individual cards as well as all your cards.

The credit utilization ratio indicates the percentage of your total debt obligation held in the form of credit cards balances.

The credit utilization ratio is used to evaluate a borrower’s payment history, and indicates the percentage of credit cards that have been paid late during the last three years.

Think about activities that can contribute to creating a strong credit history. Which of the following actions will contribute to this outcome?

Will this activity help build a strong credit history?	No	Yes
Bounce several checks and make several late payments each month.
Apply for a retail credit card and pay the balance in full each month.
Open a checking account and manage it properly.
Close most of your old existing credit card accounts

Which of the following is an indication that you are using too much credit and may be approaching or in financial distress? Check all that apply.

Your credit card balances are within 30% of the card’s credit limit.

You pay your bills in full and on time.

Using cash advances to pay other credit cards

Having an asset repossessed

Using debt-consolidation loans