Debt Management and Credit Planning Flashcards
7 cards from real CFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Debt Management and Credit Planning flashcards as text
What is the primary purpose of a debt management plan (DMP) administered by a nonprofit credit counseling agency?
Answer: To negotiate reduced interest rates and consolidate payments to creditors
A DMP allows a credit counseling agency to negotiate lower interest rates with creditors and consolidate the client's monthly payments into one manageable payment.
Which factor carries the highest weight in calculating a FICO credit score?
Answer: Payment history
Payment history accounts for 35% of a FICO score, making it the single most influential factor in the scoring model.
A financial consultant is helping a client choose between a home equity loan and a home equity line of credit (HELOC). Which statement best describes the key difference?
Answer: A home equity loan provides a lump sum at a fixed rate; a HELOC is revolving with a variable rate
A home equity loan disburses a lump sum at a fixed interest rate, while a HELOC functions as a revolving line of credit with a variable rate during the draw period.
Which of the following is considered a 'secured' form of debt?
Answer: Auto loan
An auto loan is secured debt because the vehicle serves as collateral that the lender can repossess if the borrower defaults.
Under the Fair Debt Collection Practices Act (FDCPA), a debt collector is prohibited from doing which of the following?
Answer: Calling a debtor before 8 a.m. or after 9 p.m. without consent
The FDCPA prohibits debt collectors from calling consumers before 8 a.m. or after 9 p.m. in the consumer's local time zone without prior consent.
What is debt consolidation primarily designed to accomplish for a client with multiple consumer debts?
Answer: Combine multiple debts into a single loan, ideally at a lower overall interest rate
Debt consolidation merges multiple debts into one loan, simplifying payments and potentially reducing the average interest rate the borrower pays.
A client's credit utilization ratio is currently 65%. What is the most effective immediate action to improve their credit score?
Answer: Pay down existing revolving balances to reduce utilization below 30%
Reducing credit utilization below 30% (ideally below 10%) is one of the fastest ways to improve a FICO score since utilization accounts for 30% of the score.