Answered

Which of the following is true about credit use?


ACredit cards are a typical example of installment credit.
BA low credit score will likely result in a lower interest rate for a loan.
CA high credit score will likely result in a lower interest rate for a loan.
DCar loans are a typical example of revolving credit.

Verified Answer :

Final answer:

In the context of credit use, credit cards are a form of revolving credit, while car loans are installment loans. A high credit score tends to result in lower interest rates. Understanding these distinctions is important for managing financial decisions effectively.


Explanation:

Understanding Credit Use


When it comes to managing personal finances, understanding how credit works is essential. Let’s analyze the truth about the options given regarding credit use:



  1. Credit cards are not typically considered installment credit; they fall under the category of revolving credit. This means that borrowers can use and pay off their credit card balance repeatedly, without a fixed schedule.

  2. A low credit score typically results in a higher interest rate for a loan, not lower. Lenders see low credit scores as a higher risk, which leads to increased costs for borrowing.

  3. A high credit score will generally result in a lower interest rate for a loan. This is because lenders view borrowers with high credit scores as more reliable and less likely to default on payments, thus reducing the risk for lenders.

  4. Car loans, on the other hand, are considered installment credit, as they are paid off in fixed payments over a specific period of time and do not allow for the same type of continued access to credit like revolving credit does.


In summary, the statement that is true is: A high credit score will likely result in a lower interest rate for a loan.


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