FFC Debt and Credit Management 3 — Questions and Answers
Question 1: Which credit scoring factor carries the GREATEST weight in a standard FICO score calculation?
- Length of credit history
- Types of credit used
- Payment history (Correct answer)
- New credit inquiries
Correct answer: Payment history
Payment history accounts for approximately 35% of a FICO score, making it the single most influential factor.
Question 2: A client with significant unsecured debt is considering Chapter 7 bankruptcy. Which outcome should they expect?
- A repayment plan lasting 3-5 years
- Most unsecured debts discharged within a few months (Correct answer)
- Retention of all assets including luxury items
- No impact on their credit report
Correct answer: Most unsecured debts discharged within a few months
Chapter 7 bankruptcy is a liquidation process that can discharge most unsecured debts relatively quickly, typically within 3-6 months.
Question 3: What is the primary purpose of a debt management plan (DMP) offered by a nonprofit credit counseling agency?
- To legally eliminate the client's debt
- To negotiate reduced interest rates and consolidate payments to creditors (Correct answer)
- To provide the client a personal loan at a lower rate
- To remove negative items from the credit report
Correct answer: To negotiate reduced interest rates and consolidate payments to creditors
A DMP consolidates a client's unsecured debt payments and the agency negotiates with creditors for lower interest rates on their behalf.
Question 4: Which statement about credit scores is MOST accurate for a Financial Fitness Coach to share with clients?
- Carrying a small credit card balance each month boosts your score
- Closing old credit cards always improves your score
- A score above 740 typically qualifies for the best loan rates (Correct answer)
- Checking your own score lowers it
Correct answer: A score above 740 typically qualifies for the best loan rates
Scores of 740 and above are generally considered 'very good' to 'exceptional' and qualify consumers for the most favorable interest rates.
Question 5: The statute of limitations on debt refers to:
- How long a debt can appear on a credit report
- The time period during which a creditor can sue to collect a debt (Correct answer)
- The maximum interest rate a lender can charge
- The number of times a collector can contact a debtor
Correct answer: The time period during which a creditor can sue to collect a debt
The statute of limitations is a state-specific time limit after which a creditor can no longer successfully sue to collect on a debt.
Question 6: Which practice is considered 'credit washing' and is illegal?
- Disputing accurate negative items using fabricated identity theft claims (Correct answer)
- Checking your credit report annually for errors
- Asking a creditor for a goodwill deletion of a late payment
- Requesting debt validation from a collector
Correct answer: Disputing accurate negative items using fabricated identity theft claims
Credit washing involves fraudulently claiming identity theft to remove accurate negative information, which is illegal under federal law.
Question 7: A client is deciding between paying extra toward their mortgage principal or investing in a tax-advantaged retirement account with an employer match. From a financial fitness perspective, which should generally take priority?
- Extra mortgage payments, since eliminating debt is always the safest choice
- Capturing the full employer 401(k) match first, as it represents an immediate 50-100% return (Correct answer)
- Neither; keep all extra cash in a savings account
- Equal split between both options regardless of the match amount
Correct answer: Capturing the full employer 401(k) match first, as it represents an immediate 50-100% return
Capturing a full employer match provides an immediate guaranteed return (50-100%) that almost always outweighs the benefit of paying down low-interest mortgage debt.
FFC Debt and Credit Management 3
Which credit scoring factor carries the GREATEST weight in a standard FICO score calculation?