Do you know the difference between gross and net income? How about the advantages of checking your credit report every year? Take this quiz to test your financial IQ and find out how much of a money maestro you really are.
- What is the maximum recommended percentage of your income that should go toward a mortgage payment?
Correct answer: D. The last thing you want is to own a home but lack the money to enjoy it. According to the Wall Street Journal, "most lenders suggest that you spend no more than 28% of your monthly income on a mortgage."
- True or False. Net income is the amount of money you receive after things like taxes, retirement and health insurance premiums are taken out of your paycheck?
Correct answer: True. Also known as your "take home income," net income is what you’re left with after deductions. Know this number. Investopedia notes that your mortgage eligibility is based on your gross income, what you make before deductions, but the amount of money you’ll actually have to make mortgage payments is less than that.
- A hospital bill for a broken arm is an example of what type of expense?
Correct answer: A. You didn’t see that one coming, did you? The best way to deal with these is to have an emergency fund. Forbes calls them "the financial equivalent of a spare tire–something you need to have and hope to never use."
- Which of the following statements about credit scores is NOT true?
- They can affect credit card APR.
- A bad credit score can affect your ability to rent or purchase home.
- Checking your credit score is bad.
- They can raise or lower your car insurance premiums.
Correct answer: C. You are entitled by law to get your credit report from Equifax, Experian, and TransUnion every 12 months. This won’t hurt your credit. What will damage your rating, as Forbes points out, is a hard inquiry. These happen when a financial institution pulls your credit report to assess you for a lending decision, such as approval for a mortgage or credit card.
- Which of the following factors affects your FICO score?
- Payment history
- Length of your credit history
- Total debt
- All of the above
Correct answer: D. The MyFICO website lists payment history, length of credit history, your total debt and more as factors that could have an impact on your credit score.
- True or False. According to the Overdraft Protection Act of 2013, you cannot be automatically enrolled in overdraft protection when you open a new account and must call your bank to opt in.
Correct answer: True. The text of the bill states that “if a consumer does not opt-in to such overdraft coverage: (1) the consumer's transaction may be declined if there are insufficient funds in the related transaction account, and (2) the consumer will not be charged a fee if such transaction is declined.” If you want those $30 charges, you need to ask for them!
- When you keep your money with an NCUA-insured credit union, up to what amount are you covered?
Correct answer: B. Straight from the horse’s mouth — "The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category."
- Let’s say you’re 66, but decide to wait until 70 to retire. By what percentage will your retirement income increase in just those four years?
Correct answer: C. This is one instance when the early bird doesn’t catch the worm. The New York Times did the math and discovered that your retirement income increases significantly if you wait a few more years.
- Which of the following has the biggest impact on your credit score?
- Making a late payment
- Opening new credit cards
- The length of your credit history
- The total amount of your debt
Correct answer: A. Late payments on your car loan, mortgage, credit card and more account for 35% of your FICO score. Think about that the next time you consider letting a bill wait a few days.
- What was the main provision of the Credit CARD Act?
- It changed the way credit scores were calculated.
- It established a hard limit on the amount of credit cards consumers could own.
- It said that all introductory APR offers on credit cards must last at least six months.
- It made credit card fraud a misdemeanor.
Correct answer: C. The next time you get one of those enticing “0% introductory APR” offers in the mail, you’ll know, thanks to the Credit Card Accountability, Responsibility and Disclosure Act of 2009, that the sweet deal lasts a minimum of six months.
How’d you do? It’s important to brush up on any topics you missed. Good financial literacy helps you "[avoid] charges and fees from things like making late credit card payments or paying only the minimum amount due, overspending [your] credit limit, and using cash advances."