How’s Your Financial Literacy?

Jan 6, 2014

If you’re like many, you’ve got a resolution or two focused on your finances—saving money, reducing expenses, sticking to a budget. We thought we’d help with a quiz to test your basic understanding of money management created by CredAbility, an Atlanta-based credit counseling agency. Select the best answer to each of the question.

1. A person’s credit score is based on five different factors, each accounting for a certain percentage of your score. Which category below accounts for 30% of your score?

  • A. Amount of debt you owe
  • B. Length of credit history
  • C. Your payment history
  • D. Various types of credit (credit card, auto loans, etc.)

2. Each year, identity theft is the number one consumer complaint filed with the Federal Trade Commission. Of the following actions that will put your identity at risk—which is the worst?

  • A. Telling people on Facebook that you will be on vacation and out of the country for a week
  • B. Not shredding bank documents with your personal information
  • C. Giving your Social Security number to an unsolicited caller
  • D. Failing to put a freeze on your credit report

3. You have checked your free credit report at and have found an error. How can you correct the error?

  • A. Let a creditor know when you apply for a new loan
  • B. Contact one of the three credit bureaus directly
  • C. Continue to make all of your payments on time; the error will be removed after one year
  • D. You must contact an attorney

4. A reverse mortgage can help a person 62 years and older retain ownership of their home, as long as the homeowner continues to make which of the following payments?

  • A. All medical payments. If not, a hospital or doctor can file a claim against the home.
  • B. Property taxes and homeowner’s insurance
  • C. Income taxes
  • D. There is no payment. The reverse mortgage covers all expenses as part of the agreement with your lender.

5. Which of the following best defines your net worth?

  • A. The amount of money in your savings and retirement accounts
  • B. The total value of your assets minus your liabilities
  • C. The amount you save every year after you pay all of your bills
  • D. The value of your house, car and other valuables

6. In general, how long does a negative financial event, such as a bankruptcy, stay on your credit report?

  • A. 1 year
  • B. 3 years
  • C. 7 years
  • D. Forever

7. How much should you have in an emergency savings account?

  • A. $500-$1,000
  • B. 3 months of living expenses
  • C. 6 months of living expenses
  • D. Enough money to cover one month’s household income

Pencils Down

How did you do? Answers:

1. (A) – According to CredAbility, the amount of debt you owe accounts for 30% of your credit score. Your history of paying down your debt is the most important factor in your credit score, and it accounts for 35%.

2. (C) – Protecting your Social Security number is the most important way to stop thieves from stealing your identity.

3. (B) – Write a letter and provide evidence of the error to one of the three credit bureaus. This will begin the process of removing an error from your credit report and may have an impact on your credit score.

4. (B) – A reverse mortgage eliminates the monthly mortgage payment, but the homeowner must still pay the property taxes and maintain homeowner’s insurance.

5. (B) – Your net worth is the total value of your assets (including the market value of your home) minus your liabilities (including what you owe on your mortgage).

6. (C) – Typically, accurate negative information will stay on your report for 7 years. A bankruptcy can stay on your report for 7 or 10 years.

7. (C) – Even if you have to start small, set a goal to set aside 6 months of living expenses in an account. This can make facing a financial crisis much less stressful and give you time to figure out the next steps to take. The fastest way to get there is to use things like your tax refund, raises or overtime to get a jump start on your emergency fund.

Take Stock

If you scored perfectly, good for you! You are well on your way to financial literacy. If you missed a few, it might be time to refresh yourself on money management basics, including the importance of your credit score, how to order your credit report and what credit cards can really cost.

We’ve published several articles in our NewsFeed to help you get started:

Your mortgage company may have free resources available to you, or you can contact a HUD-certified counseling agency for assistance.

  • Beware of Scams

    Learn how to identify and avoid scam artists who promise immediate relief from foreclosure.

    Find out more »
  • FAQs

    Find the answers to common questions concerning your mortgage and the various options to avoid foreclosure.

    Find out more »
  • Glossary

    Visit our glossary of key terms to increase your understanding of the foreclosure options available.

    Find out more »