NAB Lending and Credit 1

Question 1

What factors make up a credit score?

Accepted Answer

Payment history, amounts owed, length of credit history, new credit, and credit mix

Answer

FICO scores consider five factors: payment history (35%), amounts owed (30%), length of history (15%), new credit (10%), and credit mix (10%).

Question 2

What is the difference between a fixed-rate and adjustable-rate mortgage?

Accepted Answer

Fixed-rate keeps the same interest rate throughout; adjustable-rate can change based on market conditions

Answer

Fixed-rate mortgages lock in one interest rate for the entire loan term, while adjustable-rate mortgages (ARMs) can change periodically based on a reference interest rate.

Question 3

What is a debt-to-income ratio?

Accepted Answer

The percentage of gross monthly income that goes toward paying debts

Answer

DTI ratio compares monthly debt payments to gross monthly income, used by lenders to assess borrowing capacity.

Question 4

What is the purpose of a credit report?

Accepted Answer

To provide a detailed history of your credit accounts, payment behavior, and financial reliability

Answer

Credit reports compiled by bureaus like Equifax, Experian, and TransUnion detail your credit history, helping lenders assess your creditworthiness.

Question 5

What is collateral in lending?

Accepted Answer

An asset pledged to secure a loan that the lender can claim if the borrower defaults

Answer

Collateral is property or assets that a borrower offers as security. If the borrower cannot repay, the lender can seize the collateral.

(NAB) National Australia Bank Practice Test

(NAB) National Australia Bank Practice Test

NAB Lending and Credit 1