AFC - Accredited Financial Counselor Credit and Debt Management Questions and Answers

Question 1

A client, Sarah, is working to improve her FICO credit score. Which of the following factors carries the most weight in the FICO score calculation?

Accepted Answer

Payment history

Answer

Payment history is the most significant factor in calculating a FICO score, accounting for approximately 35% of the total score. Making timely payments on all credit obligations is crucial for building and maintaining a good credit score.

Question 2

An AFC is counseling a client who is overwhelmed with various debts. The client has a stable income and wants to pay off their debt systematically. The counselor suggests the 'debt snowball' method. Which of the following best describes this strategy?

Accepted Answer

Paying off the smallest debt balance first for a quick psychological win, then rolling that payment into the next smallest debt.

Answer

The debt snowball method focuses on building momentum and motivation. The client pays off the smallest debts first, regardless of interest rates. This provides a quick sense of accomplishment, which can encourage them to continue with the debt repayment plan by applying the freed-up payment amount to the next-largest debt.

Question 3

Under the Fair Debt Collection Practices Act (FDCPA), which of the following actions by a third-party debt collector is permissible?

Accepted Answer

Calling the debtor's neighbor to ask for the debtor's address.

Answer

The FDCPA allows a debt collector to contact third parties, like a neighbor, for the limited purpose of acquiring location information about the debtor. They cannot, however, state that the consumer owes any debt. Calling after 9 PM, disclosing the debt to an employer, or making false threats are all prohibited practices under the FDCPA.

Question 4

A client pulls their credit reports from all three major credit bureaus (Equifax, Experian, and TransUnion) and notices an error on the Experian report. What is the first step the client should take to dispute this inaccuracy?

Accepted Answer

File a dispute directly with the credit bureau (Experian) that is showing the error.

Answer

The Fair Credit Reporting Act (FCRA) outlines the process for disputing errors. The first and most direct step is to file a dispute with the specific credit reporting agency that is reporting the incorrect information. The bureau must then investigate the claim, typically within 30 days.

Question 5

A financial counselor is calculating a client's back-end debt-to-income (DTI) ratio. The client has a gross monthly income of $5,000. Their monthly obligations include a $1,200 mortgage payment, a $400 car loan payment, a $150 student loan payment, and a $100 minimum credit card payment. What is the client's back-end DTI ratio?

Accepted Answer

37%

Answer

The back-end DTI ratio includes all monthly debt payments, including housing. The calculation is (Total Monthly Debt Payments / Gross Monthly Income) * 100. In this case, ($1,200 + $400 + $150 + $100) / $5,000 = $1,850 / $5,000 = 0.37, or 37%.

AFC - Accredited Financial Counselor Practice Test

AFC - Accredited Financial Counselor Practice Test

AFC - Accredited Financial Counselor Credit and Debt Management Questions and Answers