Financial Counseling Certification Program (FiCEP) Practice Exam

What is the purpose of a credit report?

1. To summarize overall wealth

2. To provide a record of credit inquiries

3. To evaluate one’s ability to borrow money

4. To outline investment strategies

The correct answer is: To evaluate one’s ability to borrow money

The purpose of a credit report is to evaluate one’s ability to borrow money. This document provides a detailed summary of an individual's credit history, which includes information about their borrowing and repayment behavior. Lenders use this information to assess the risk associated with lending money to a particular individual. A credit report contains important details such as the types and amounts of credit accounts, payment history, outstanding debts, and the length of credit history. It can also highlight whether payments have been made on time or if there have been any missed payments or defaults. This information allows lenders to make informed decisions about whether to grant credit, how much to lend, and at what interest rate, thus playing a crucial role in the borrowing process. The other options don't align with the primary purpose of a credit report. While it does contain records of credit inquiries, this is just one aspect of the report rather than its main purpose. A credit report does not summarize overall wealth or outline investment strategies, as those are not relevant to the evaluation of creditworthiness and borrowing ability.