BMO Credit & Lending Fundamentals

Question 1

What is the primary purpose of a credit score in a banking assessment context?

Accepted Answer

To evaluate the likelihood that a borrower will repay a debt as agreed

Answer

To determine a borrower's employment history

Answer

To calculate the interest rate mandated by the central bank

Answer

To measure a customer's total net worth

Question 2

Which of the following is an example of secured credit?

Accepted Answer

A mortgage loan backed by the property being purchased

Answer

A personal line of credit with no collateral

Answer

A standard credit card

Answer

An unsecured personal loan

Question 3

What does the debt-to-income (DTI) ratio measure?

Accepted Answer

The percentage of a borrower's gross monthly income consumed by monthly debt payments

Answer

The ratio of total assets to total liabilities on a balance sheet

Answer

The proportion of revolving credit used relative to total credit available

Answer

The interest expense relative to total outstanding debt

Question 4

Within the FICO scoring model, what is the standard credit score range?

Accepted Answer

300 to 850

Answer

0 to 500

Answer

100 to 900

Answer

500 to 1000

Question 5

Which factor carries the greatest weight in calculating a FICO credit score?

Accepted Answer

Payment history

Answer

Length of credit history

Answer

Credit mix and variety of accounts

Answer

New credit inquiries

Question 6

What is a revolving line of credit?

Accepted Answer

A credit facility allowing the borrower to draw, repay, and re-borrow up to a set limit

Answer

A loan with a fixed repayment schedule and a set end date

Answer

A loan fully disbursed at origination and repaid in equal installments

Answer

A short-term bridge loan used exclusively for real estate transactions

Question 7

In lending, what is collateral?

Accepted Answer

An asset pledged by the borrower to secure a loan

Answer

The co-signer who guarantees the loan

Answer

The interest charged on a loan beyond the principal

Answer

The lender's internal credit approval committee