BUS Test 2
A reasonably good debt-equity ratio for an individual, excluding a home mortgage would be:
.35 -.40
If you have declared personal bankruptcy, that fact may be reported to credit bureaus for ____ years.
10
Experts suggest that you spend no more than ____% of your net income on non-housing related credit purchases.
20
Dave's net pay per month is $2000. What is the maximum dollar amount of debt payments he should have?
400
The Baby Boom generation currently represents about 30% of the population, but holds nearly ____% of the debt outstanding
60
Most of the information in your credit file may be reported for ___ years
7
Most of the information in your credit file may be reported for only __________ years.
7
What happens to your credit rating during the billing dispute?
A creditor may not threaten your credit rating while you are resolving a billing dispute. And until your complaint has been answered, the creditor may not take any action to collect the disputed amount.
What is a debit card?
A debit card debits your account at the moment you buy goods or services. Debit cards withdraw money from your account as soon as you make a purchase. Debit cards are used most commonly at automated teller machines and at point-of-sale terminals in stores.
What can you do to build and maintain your credit rating?
A good credit rating is a valuable asset that should be nurtured and protected. If you want a good rating, you must use credit with discretion; limit your borrowing to your capacity to repay, and live up to the terms of your contracts. The quality of your credit rating is entirely up to you.
What is a home-equity loan?
A home-equity loan is based on the difference between the current market value of your home and the amount you still owe on your mortgage. A home-equity loan is usually set up as a revolving line of credit, typically with a variable interest rate.
What are the advantages and disadvantages of credit?
Advantages of using credit are: purchasing goods and services when they are needed and paying for them gradually, meeting financial emergencies, achieving convenience in shopping, establishing a credit rating, making forced savings, and employing credit as leverage. Disadvantages are: credit costs money, encourages impulse buying and overspending, and ties up future income. Furthermore, credit misuse can create serious long-term financial difficulties.
Why is consumer credit important to our economy?
All economists now recognize consumer credit as a major force in the American economy. Any forecast or evaluation of the economy includes consumer spending trends and consumer credit as a sustaining force. To paraphrase an old political expression, as the consumer goes, so goes the U.S. economy.
Which one of the following is not one of the five Cs of credit?
Climate
What are the two main types of consumer credit?
Closed-end and open-end are two types of consumer credit. With closed-end (or installment-credit, the borrower pays back a one-time loan in a specific number of payments in a specific period of time. With open-end credit, or revolving credit, the borrower is permitted to take loans on a continuous basis and is billed for partial payments periodically. The three most common types of closed-end credit are installment sales credit, installment cash credit, and single lump-sum credit. Examples of open-end credit include convenience credit, incidental credit, revolving credit, and credit cards. Only individual or family circumstances will dictate if one type of credit is better than another.
What is Consumer Credit?
Consumer credit refers to the use of credit for personal needs (except a home mortgage) by individuals and families.
What can you do if your identity is stolen?
Contact the fraud departments of each of the three major credit bureaus; contact your creditors; and file a police report.
What are five C's of credit?
Creditors evaluate the five C's (character, capacity, capital, collateral, and conditions) in granting or denying credit. For example, is the borrower prompt in paying bills? Has the borrower declared personal bankruptcy or been forced by courts to pay bills? What is the borrower's occupation, income, and how long has he/she been working? What is the borrower's net worth? Is the loan to be secured by collateral? What general economic conditions can affect a borrower's ability to repay a loan and other obligations? Creditors use different combinations of the above facts to reach their decisions.
What federal laws protect you if you have a complaint regarding consumer credit?
Exhibit 6-11 summarizes Federal Consumer Credit laws: the Truth in Lending Act, the Fair Credit Reporting Act, the Fair Credit Billing Act, the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act, and the Consumer Credit Reporting Reform Act.
Which federal law protects you by requiring credit bureaus furnish accurate and complete information to lenders?
Fair Credit Reporting Act
With closed-end credit, the borrower is permitted to take loans on a continuous basis and is billed for partial payments periodically.
False
With open-end credit, the borrower pays back a onetime loan in a specified period of time and with a specified number of payments.
False
What are the uses and misuses of credit?
Financing a Corvette on credit when a Ford Escort is all your budget allows. Using credit cards to buy frivolous goods and services. Purchasing nonessential products on an impulse. Valid reasons for using credit are: a medical emergency; need for a car; and buying an item now for less money than it will cost later.
What must you do to protect your rights if there is a billing error?
First, notify the creditor in writing within 60 days after the bill was mailed. State the suspected amount of the error on the item you want explained. Then pay all the parts of the bill that are not in dispute.
What can you do if your credit application is denied?
The ECOA gives you the right to know the specific reasons for denial. If it is based on a credit report, you are entitled to know the specific information in the credit report that led to denial. Then, visit or telephone the local credit bureau to find out what information is reported. You may ask the bureau to investigate any inaccurate or incomplete information and correct its records.
What is the Equal Credit Opportunity Act?
The Equal Credit Opportunity Act, (ECOA) states that race, color, age, sex, marital status, and certain other factors may not be used to discriminate against you in any part of a credit dealing. It starts all credit applicants off on the same footing.
What is the Fair Credit Billing Act (FCBA)?
The FCBA sets procedures for promptly correcting billing mistakes, for refusing to make credit-card or revolving credit payments on defective goods, and for promptly crediting your payments.
What is the Fair Credit Reporting Act?
The Fair Credit Reporting Act gives you the right to know what your credit file contains. Erroneous information must be corrected to your satisfaction; if not, you may enter your version.
Credit encourages overspending and ties up future income.
True
Creditors determine credit worthiness on the basis of character, capacity, capital, collateral, and conditions.
True
Two general rules of thumb for measuring credit capacity are the debt payments-to-income ratio and debt-to-equity ratio.
True
Which federal consumer credit law provides specific cost disclosure requirements for the annual percentage rate (APR) and the finance charge as a dollar amount?
Truth In Lending Act
Which federal law limits a cardholder's liability for unauthorized use of a card to $50?
Truth in Lending Act
What are the general rules of measuring credit capacity?
Two general rules for measuring credit capacity are: debt payments-to-income ratio, and debt-to-equity ratio. None of these methods is perfect for everyone; the limits given are only guidelines. Only you, based on the money you earn, your current obligations, and your financial plans for the future, can determine the exact amount of credit you need and can afford. You must be your own credit manager.
What are your legal remedies if a credit reporting agency engages in unfair reporting practices?
Under the Fair Credit Reporting Act, you can sue the agency. If the agency or the user is found guilty, you may be awarded actual damages, court costs, and attorney's fees. In case of willful noncompliance, punitive damages maybe allowed by the court.
How do you correct erroneous information in your credit file?
When you notify the credit bureau that you dispute the accuracy of information, it must reinvestigate and modify or remove inaccurate data. If reinvestigation does not resolve the dispute to your satisfaction; you may place a statement of 100 words or less in your file, explaining why you think the record is inaccurate.
What can happen if you cosign a loan?
You may end up paying the loan yourself. Despite the risks, there may be times when you decide to cosign a loan for a friend or a relative. Before you cosign, make sure you know what cosigning involves. For example, be sure you can afford to pay the loan. If the borrower defaults, you could damage your credit rating, and you could lose the property you pledge.
What are your rights under the consumer credit laws?
a.Complain to the creditor. Let the creditor know you are aware of the law. b.File a complaint with the government. You can report any violations to the appropriate enforcement agency. c.If all else fails, sue the creditor. You have the right to bring a case in a federal district court. A private attorney can advise you on how to proceed.
In evaluating your credit application, a lender may:
ask your age
Which of the following is most likely NOT a valid reason for using credit?
borrowing to support monthly entertainment activities
Debt-to-equity ratios are:
calculated by dividing total liabilities by net worth
A loan officer is examining your income and the amount of your existing debt payments in deciding whether or not to make a loan to you today. Which of the credit C's is the officer assessing?
capacity
The borrower's financial ability to meet credit obligations is called:
capacity
A term that refers to the borrower's assets or net worth is called
capital
If you are denied credit, your first step should be to:
check your credit bureau file
Kathy purchased a $1,000 digital tv from Young's Appliances. She will make 12 equal payments over the next year to pay for it. She is using:
closed-end credit
A valuable asset pledged to assure loan payments and that is subject to seizure upon debt default is called:
collateral
What is the first thing you should you do if your identity is stolen?
contact the 3 major credit bureaus
When did installment credit explode on the American scene?
during the early 1900's when automobiles were first mass-produced
Which of the following is a disadvantage of using credit:
increases propensity to overspend
An example of closed-end credit is
installment sales credit
Which of the following can be included in your credit report
marital status
The debt payments-to-income ratio is:
monthly credit payments/net pay
An example of open-end credit is
revolving check credit
Another name for open-end credit is:
revolving credit
Greg Thompson uses his Visa card to purchase a new digital camera and lens. What type of credit did Greg use?
revolving credit
Which of the following agencies can produce for a subscribing creditor, almost instantaneously, a report about your past and present financial activity?
the Credit Bureau
Which federal law provides specific cost disclosure requirements for the annual percentage rate and the finance charge as a dollar amount?
truth in lending act
Which of the following is NOT included as part of the calculation of your FICO score
whether the accounts are single or jointly held
When/If you co-sign a loan:
you will have to pay the debt if the borrower does not