Financial Literacy Quiz Results: How Did You Do?

Great job on taking our quiz! How did you do? Scroll down to find the correct answers to better understand why you got a question right or wrong.

beginnergettingthere4Beginner: 30% or less

Your knowledge of money management leaves something to be desired. Have you considered attending a free financial education class at your local community center or city college?

Getting there: 40% to 60%

You have a basic understanding of money, but don’t always make the best choices when it comes to debt management.

At Credit Sesame, we offer free credit monitoring and education that will help you take the next step towards becoming a financial expert.

Sign up for free, and you can be on your way to being an “Expert” or “Financial Guru.”

 

guru4Expert: 70% to 90%

You’re on the right track! You have an understanding about credit and money management that helps you make the right financial choices almost all the time.

Financial guru: 100%

Congratulations! You made the smartest financial decisions in our quiz and achieved a perfect score! But don’t stop there…

Credit Sesame can help you easily monitor your credit and continue to make smart decisions when it comes to your money, so sign up for free, today.

To enter the contest, tweet your results with #MyCreditSesameIQ

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An example tweet would be: “I am a beginner #MyCreditSesameIQ.”

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Quiz, with answers

1. Which of the following behaviors could potentially hurt your credit score the most?

A. Applying for five new credit cards on the same day.
B. Closing my oldest credit card because it has a $0 balance.
C. Losing my job.
D. Not making any payments on credit cards that have balances for three months.

Best answer: D. While credit inquiries (applying for a new card) and length of credit history (closing your oldest card) could both affect your credit score — according to FICO, they comprise 10% and 15% of your score in general — payment history plays a much larger role, with 35%. Employment status is not a factor in calculating credit scores.

2. You have been accepted to all three of your top-choice colleges. All things equal, even discretionary spending and the cost of books and school supplies, which financial aid package would you choose?

A. College A costs $20,000 a year in tuition, room & board, and has offered you a financial aid package comprised of a $6,000 merit grant and $9,000 in federal student loans.
B. College B costs $12,000 a year in tuition, room & board, and has offered you a $5,000 grant and $7,000 in student loans.
C. College C costs $40,000 a year in tuition, room & board, and has offered you a $25,000 athletic scholarship, a $3,000 grant and $5,000 in student loans.

Best answer: B. Assuming the choice of college is purely financial, look at the financial aid package relative to the total cost of education, and consider your unmet need and the total debt cost of your choice. While College C is giving you the largest overall financial aid package — $33,000 to offset the $40,000 cost — $5,000 of that is student loans and another $7,000 in unmet need, which would need to be paid out of pocket, or with private student loans. That’s a total $12,000 in potential debt. College A would leave you with $9,000 in student loans and another $5,000 in unmet need, for a total of $14,000 in debt, while College B is going to cost you a total of $7,000 in student loans. Therefore, College C makes the most financial sense.

 College ACollege BCollege C
Total cost$20,000$12,000$40,000
Student loans$9,000$7,000$5,000
Unmet need$5,000$0$7,000
Total debt$14,000$7,000$12,000

3. Your credit score is currently 680. You would like to improve it, as about a year from now, you are hoping to buy your first home. Which of the strategies below would help you most?

A. Hire a credit repair company, because they guarantee to increase your credit score within 30 days!
B. You don’t have any late payments or derogatory accounts, so you’ll work on paying down your credit card balances and keeping them as low as possible over the next 12 months.
C. You will take out a consumer loan, to show mortgage lenders that you have a variety of loans on your credit report: you’ve heard that this helps your credit score.

Best answer: B. The FTC warns that making guarantees about improving your credit score and asking for payment upfront are signs of a credit repair scam. And while it is true that your credit mix could be responsible for 10% of your FICO score, why go into debt on the hope of marginally improving your score?
The smartest thing you can do as you work to improve your credit score is pay down your credit card balances — and keep them as low as you can. Credit utilization makes up 30% of your FICO score, so the lower your credit card balances compared to your credit limits, the better.

4. You have $90,000 in credit card debt and are hardly able to pay the minimum payments, let alone pay all those cards off. What would you do:
A. File for Chapter 13 bankruptcy, so my debts are reorganized in a way that helps me pay down at least some of them, while what I cannot afford to pay is forgiven.
B. Cash out an old IRA, which has $25,000, to at least pay down some of my debt, then continue working on it as best as I can.
C. Start a GoFundMe campaign, asking people for help in getting out of this impossibly difficult situation.

Best answer: A. Paying off $25,000 of your debts at the expense of your retirement might seem like noble sacrifice, but it isn’t. And even if you could convince your generous friends, family and strangers to give you money to pay off your credit card debt, would you be able to collect enough? What if a few months from now you found yourself struggling to make payments on what debt remained after that initial band-aid?
Chapter 13 bankruptcy is hardly something to be proud of, but it is a plan: one that would let you start fresh, while still paying down as much of your debts as you can afford.

5. You owe the IRS $10,000 this year and you don’t have the money. How would you pay?

A. I’ll use a credit card.
B. I’ll set up a repayment plan with the IRS.
C. I’m not going to file my taxes this year. Maybe I’ll have more money next year and catch up.

Best answer: B. Your tax debt won’t go away if you ignore it — and you’ll be hit with penalties, interest, and possibly a tax lien and garnished wages if you wait long enough to pay up. Paying with a credit card, meanwhile, would cost you significantly more in interest than an IRS repayment plan, the cost of which is currently 3% per year, plus a small set-up fee.

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