FFC Debt and Credit Management 2

Question 1

A client has a $10,000 credit card balance at 22% APR and a $15,000 car loan at 6% APR. Which debt-payoff strategy recommends tackling the credit card first?

Accepted Answer

Avalanche method

Answer

The avalanche method targets the highest-interest debt first to minimize total interest paid.

Question 2

What is the maximum debt-to-income (DTI) ratio most conventional mortgage lenders prefer borrowers not to exceed?

Accepted Answer

36%

Answer

Most conventional lenders prefer a back-end DTI of 36% or lower, though some allow up to 43-50%.

Question 3

Which action MOST directly improves a client's credit utilization ratio?

Accepted Answer

Paying down revolving credit card balances

Answer

Paying down revolving balances lowers the amount of available credit being used, directly reducing the utilization ratio.

Question 4

A 'hard inquiry' on a credit report typically results from which of the following?

Accepted Answer

Applying for a new credit card

Answer

Applying for new credit triggers a hard inquiry, which can temporarily lower a credit score by a few points.

Question 5

Which of the following debts is generally considered 'secured'?

Accepted Answer

Auto loans

Answer

Auto loans are secured debt because the vehicle serves as collateral that the lender can repossess upon default.

(FFC) Financial Fitness Coach Certification Practice Test

(FFC) Financial Fitness Coach Certification Practice Test

FFC Debt and Credit Management 2