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Quizzes > Quizzes for Business > Finance

Credit Advisor Knowledge Assessment Quiz

Explore Key Principles of Credit Advisory Knowledge

Difficulty: Moderate
Questions: 20
Learning OutcomesStudy Material
Colorful paper art illustrating a quiz on Credit Advisor Knowledge Assessment

This Credit Advisor Knowledge Assessment lets students and professionals test their credit advisory skills and understanding of credit scoring. Through 15 targeted multiple-choice questions, you'll evaluate credit management principles and score analysis. Aspiring credit advisors and finance students will gain confidence and pinpoint areas for improvement. Every question can be freely modified in our quizzes editor to suit your learning objectives. For further practice, explore the Credit Management Quiz and the Credit Score Knowledge Assessment.

What does APR stand for?
Annual Percentage Rate
Average Payment Requirement
Adjusted Payment Ratio
Annual Premium Rate
APR stands for Annual Percentage Rate and represents the cost of credit expressed as a yearly interest rate. Lenders disclose APR to ensure borrowers understand the total cost of borrowing.
Which of the following is NOT a factor in the FICO credit scoring model?
Length of credit history
Payment history
Debt-to-income ratio
Credit mix
The FICO scoring model is based on payment history, amounts owed, length of credit history, new credit, and credit mix. Debt-to-income ratio is not directly a component of the FICO formula.
What is a typical range for a "good" FICO credit score?
300 to 579
670 to 739
740 to 799
580 to 669
FICO considers scores from 670 to 739 as "good," indicating that the consumer manages credit responsibly. This range falls above fair and below very good.
Which law primarily governs the accuracy and fairness of credit reporting?
Equal Credit Opportunity Act (ECOA)
Truth in Lending Act (TILA)
Fair Credit Reporting Act (FCRA)
Fair Debt Collection Practices Act (FDCPA)
The Fair Credit Reporting Act (FCRA) sets standards for how credit information is collected, reported, and used to ensure accuracy and fairness. It protects consumers by regulating credit reporting agencies.
Which type of credit account is considered revolving credit?
Auto loan
Credit card
Mortgage
Student loan
Revolving credit allows borrowers to draw down and repay repeatedly up to a set limit, as with credit cards. Installment loans like auto loans and mortgages are repaid in fixed installments.
Which section of a credit report lists tax liens and bankruptcies?
Inquiries
Public Records
Personal Information
Accounts
The Public Records section of a credit report includes legal items such as tax liens and bankruptcies. These entries are public filings that indicate serious credit risk.
The front-end debt ratio used in mortgage lending compares housing expenses to what?
Credit limit
Gross income
Total assets
Net income
The front-end debt ratio measures a borrower's housing expenses against gross monthly income. Lenders use this ratio to determine mortgage affordability.
Under the Equal Credit Opportunity Act, which factor is NOT a protected characteristic?
Income level
Race
Marital status
Religion
ECOA prohibits discrimination based on factors like race, color, religion, and marital status. Income level is a financial factor and not a protected characteristic under ECOA.
What is considered a best practice when advising clients on choosing credit products?
Ensuring the product aligns with the client's financial goals
Discouraging clients from diversifying their credit mix
Recommending products with the highest interest rates
Prioritizing products with highest commissions
Advisors should match credit products to a client's financial goals, risk tolerance, and needs. This ensures suitability and fosters trust in the advisory relationship.
Which strategy can help improve a client's credit utilization ratio?
Increasing spending up to the credit limit
Closing old credit accounts
Consolidating balances into a single loan
Applying for multiple new credit cards
Consolidating high-interest card balances into one loan can lower revolving utilization. A lower utilization ratio generally boosts credit scores.
What distinguishes a hard inquiry from a soft inquiry on a credit report?
A hard inquiry does not affect the credit score
A soft inquiry occurs only when applying for new credit
A hard inquiry occurs when applying for new credit and can lower the credit score
A soft inquiry is recorded permanently on the report
A hard inquiry is generated when a lender checks credit for a new application and can slightly lower a credit score. Soft inquiries, such as self-checks, do not affect the score.
Which component carries the highest weight in the FICO scoring formula?
Payment history
New credit
Credit utilization
Length of credit history
Payment history accounts for approximately 35% of the FICO score. It reflects the borrower's record of on-time versus late payments.
Which consumer protection law requires lenders to disclose the annual percentage rate (APR) to borrowers?
Fair Debt Collection Practices Act (FDCPA)
Truth in Lending Act (TILA)
Fair Credit Reporting Act (FCRA)
Equal Credit Opportunity Act (ECOA)
The Truth in Lending Act (TILA) mandates clear disclosure of APR and other loan terms. This promotes transparency and helps consumers compare credit costs.
How does a high credit utilization ratio typically affect a credit score?
It has no impact on the score
It lowers the credit score
It raises the credit score
It only affects scores when utilization exceeds 90%
A high credit utilization ratio indicates heavy reliance on available credit and generally lowers credit scores. Experts recommend keeping utilization below 30%.
Which credit product is most effective for a client looking to build or rebuild credit?
Payday loan
Unsecured personal loan
Overdraft facility
Secured credit card
A secured credit card requires a deposit and reports payments to credit bureaus, helping build positive payment history. Other products like payday loans do not typically report to major bureaus.
Which sequential strategy is most effective for a client trying to improve a poor credit score?
Relying solely on secured credit cards for new credit
Paying down existing high balances and setting up automatic payments
Opening multiple new credit accounts to diversify credit mix
Closing paid-off credit accounts to simplify the credit report
Paying down high balances lowers credit utilization and setting up automatic payments ensures timely payment history. These factors have the greatest impact on credit score improvement.
Under the Fair Credit Reporting Act, how many days does a credit reporting agency have to investigate a consumer dispute?
60 days
15 days
45 days
30 days
The FCRA requires credit reporting agencies to investigate consumer disputes generally within 30 days. This timeframe ensures prompt resolution of inaccurate information.
Which component of the FICO scoring model rewards a diverse mix of installment and revolving credit accounts?
Credit utilization
Credit mix
Payment history
New credit
Credit mix accounts for about 10% of the FICO score and evaluates the variety of credit accounts a consumer maintains. A balanced mix of installment and revolving credit can boost this score component.
Under the Equal Credit Opportunity Act, within how many days must a creditor provide an adverse action notice after taking an adverse action?
45 days
60 days
30 days
15 days
ECOA mandates creditors to send an adverse action notice within 30 days of deciding to deny or modify credit. Timely notification ensures applicants are informed of decisions and their rights.
Which credit product is most suitable for a client needing flexible, ongoing access to funds, often at lower rates?
Certificate of deposit
Auto loan
Fixed-rate personal loan
Home equity line of credit (HELOC)
A HELOC provides a revolving line of credit secured by home equity, offering flexible access to funds and typically lower interest rates. It suits clients who need ongoing borrowing capacity.
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Learning Outcomes

  1. Analyse credit reports to identify key risk indicators
  2. Evaluate loan applicants based on creditworthiness metrics
  3. Master best practices for advising on credit products
  4. Identify factors influencing credit scores and eligibility
  5. Demonstrate knowledge of regulatory compliance in credit advising
  6. Apply strategies to optimize client credit portfolios

Cheat Sheet

  1. Identify key risk indicators in credit reports - Think of your credit report as a financial report card: high credit utilization and a trail of late payments are the red flags that scream "potential default ahead!" Spotting these early helps you coach clients toward smarter borrowing habits. Insightful Banking
  2. Evaluate loan applicants with financial ratios - Crunching numbers like the debt-to-income ratio is like running a quick health check on a borrower's wallet. By comparing total debt to income, you get a clear snapshot of their repayment muscle. FasterCapital
  3. Master best practices for advising on credit products - Stay plugged into market trends and personalize your credit recommendations like you'd tailor a playlist for friends. When you match products to individual risk profiles, clients feel heard and wallets stay happy. Fintrak Software
  4. Identify factors influencing credit scores - From payment history and credit utilization to credit age, variety, and recent inquiries, each piece plays a starring role in the score drama. Understanding how they interact lets you help clients tweak behaviors for better ratings. Insightful Banking
  5. Demonstrate knowledge of regulatory compliance - Laws like the Fair Credit Reporting Act and the Equal Credit Opportunity Act are your rulebook for ethical credit advising. Mastering them ensures you keep clients safe and institutions on the right side of the law. Toxigon
  6. Apply strategies to optimize client credit portfolios - Diversifying credit types and smartly managing utilization is like assembling a winning team: balance is everything. These tactics can boost your clients' scores and supercharge their financial health. Toxigon
  7. Recognize the importance of data quality - Accurate, complete, and up-to-date client info is non-negotiable for sharp lending decisions. Think of data hygiene as the foundation that keeps your credit insights reliable and rock-solid. Toxigon
  8. Understand the role of credit scoring models - Credit scoring models are like fortune-tellers for lenders, using stats to predict default odds. Grasping their mechanics lets you explain risk assessments with confidence and clarity. Toxigon
  9. Learn about the impact of payment history - Making on-time payments is your credit score's best friend; late marks are like gossip that spreads fast. Teaching clients the power of consistency can turn their score from "meh" to "magnificent." Insightful Banking
  10. Stay updated on best practices for credit risk management - Regular stress tests and scenario analyses are your financial weather forecasts: they show how portfolios can weather economic storms. Keeping these practices sharp ensures you're always one step ahead of risk. Toxigon
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