Financial literacy month is here! Take our quiz to brush up on your personal finance knowledge.
Are you financially literate? [Quiz]
Take NerdWallet's financial literacy quiz to make sure you’re prepared to ace your finances this year!
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Which is the best way to build your credit score while avoiding fees?
Pay off the “minimum payment” each month on your credit cards
Pay off your entire balance each month on your credit cards
Open multiple credit cards and pay the full balance on some of them
Question 1 Explanation:
To raise your credit score, it’s best to pay off your entire balance each month. Don’t be deceived by the confusing language the credit card industry has adopted, specifically “minimum payment.” While carrying a balance does not hurt your credit score, it leads to interest fees, so try to pay the balance in full when you get your monthly statement. Check out our infographic for more information on how to find, understand and build your credit.
How is your FICO score calculated?
Payment history, amounts owed, length of credit history and number of open credit cards
Payment history, amounts owed and length of credit history
Payment history, amounts owed, length of credit history, types of credit used and new credit
Question 2 Explanation:
Your FICO score is calculated based on your payment history (35% of your FICO score), the amount you owe (30%), the length of your credit history (15%), new credit (10%) and the types of credit that you use (10%). Your FICO score, otherwise known as your credit score, is one of the most critical numbers to maintain and monitor. It will determine your eligibility for credit cards, home loans, car loans, student loans, apartment rentals and even certain job positions. If you are granted credit, your credit score will also influence your interest rate. For more information, refer to our article, What's My Credit Score?
How much should you spend on housing?
Around 30% of your income
Around 50% of your income
Around 70% of your income
Question 3 Explanation:
Most experts recommend trying to keep your housing expenses to around 30% of your income. This can be difficult because the cost of living varies from city to city, so you should view it as a guideline rather than a strict rule. For more information, refer to our tips about living expenses.
Experian, TransUnion and Equifax are all types of:
Credit card companies
Question 4 Explanation:
Once a year, you can receive a free credit report from each of the three major credit bureaus: Experian, TransUnion and Equifax. This is the best way for consumers to monitor their credit and identify errors in their reports. Credit reports must be requested, and according to the CFPB’s recent study, only one in five Americans currently request their yearly report. For more information, see our infographic on credit.
How much money should you keep liquid in your emergency fund?
Enough to cover 1 month of expenses
Enough to cover 3-6 months of expenses
Enough to cover 9-12 months of expenses
Question 5 Explanation:
Experts recommend having enough in a savings account to cover 3-6 months of expenses. Try to save at least that amount, and if you have more, you can invest it or keep it in a non-liquid account like a Certificate of Deposit (CD) or retirement account. For more information, see our article, How Much Should I Save For a Rainy Day Fund?
How often can you get a free credit report from each credit bureau?
Once a month
Once every six months
Once every year
Question 6 Explanation:
You qualify for a free credit report from each credit bureau once a year. After that, you can still access the report for a year, but the information will not be updated. Go to AnnualCreditReport.com to receive your free yearly report.
Which of these will not improve your credit score?
Pay your bills before the due date
Have a credit card balance that is less than 30% of your credit limit
Use a prepaid credit card and don’t overspend on it
Question 7 Explanation:
Prepaid cards do not have any impact on your credit score, positive or negative. Paying your credit card bill on time and keeping your balance low helps raise your credit score. Your debt utilization ratio is the ratio of your balance compared to your credit limit. You should try to keep this below 30% because lenders like to see that you are not close to exceeding your credit limits. For example, if you are granted a credit limit of $5,000, you should never have a balance greater than $1,500. If necessary, pay off your balance as soon as you approach that limit. Lenders look at your overall debt as well as your debt utilization ratio. For more information on debt utilization ratios, see our article on the subject.
Your savings account has an interest rate of 1%, and inflation is currently at a rate of 2.2%. If you leave your money in the savings account, in a year you will be able to buy:
More than you can buy now
Less than you can buy now
The same as you can buy now
Question 8 Explanation:
Inflation decreases the purchasing power of the dollar. Because inflation rates currently exceed savings rates, your money will lose value over time even if you leave it in a savings account. Sometimes higher interest rates can be found at credit unions and online banks—use our rates tool to get the highest rate for your money.
Which of these types of accounts does not limit the amount of withdrawals you can make per month?
Money market account
Question 9 Explanation:
Savings accounts and money market accounts limit withdrawals to six per month. If you make more than 6 withdrawals, a fee is charged. Note, however, though, that you if you withdraw more money than you have in your checking account, you will be charged an overdraft fee, typically around $35. Learn more about the differences between checking, savings, CD and money market accounts.
The least expensive way to handle your everyday transactions is by opening:
A prepaid card that does not charge a monthly fee
A checking account with no monthly fee in which you opt into an overdraft program—the bank will process debit card transactions that exceed your balance
A checking account with no monthly fee in which you do not opt into an overdraft program—the bank will not process debit card transactions that exceed your balance
Question 10 Explanation:
Prepaid cards often charge hidden fees, including fees for withdrawing money, closing the account, signature transactions, balance inquiries and other actions. Checking accounts are usually much cheaper for consumers. Opting into an overdraft program can be expensive as well, and banks charge around $35 per debit card transaction that overdraws the account. It’s best to opt out of the overdraft program so a $2 coffee doesn’t end up costing you an extra $35.
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The first step to taking control of your finances is seeking out information, so you’re already on the way to financial fitness. Try our financial literacy orientation to learn the basics!
You know the basics of personal finance, but there's more to learn. To learn more, try our financial literacy orientation.
Congratulations! You are financially savvy. If you want more information, refer to our financial literacy orientation