Chapter 6 Intro to consumer credit
Clara's home is worth $200,000. She owes $83,000 on her mortgage. The lender will allow her to borrow up to 85% of the value of her home. How much can she borrow on a home equity loan?
$87,000
What are some disadvantages of credit?
-Future income may decrease. -The temptation to overspend.
A prearranged amount of money that is accessed with special checks is called:
-a bank line of credit. -a revolving check credit.
The term consumer credit describes:
-amounts owed on credit cards. -loans to families for automobiles.
Which of the following is the ideal, not maximum, debt payment-to-income ratio?
15%
What is a typical grace period for retailers?
21 to 30 days
What is one method of determining your home equity line of credit maximum?
75% of home value less the amount of your first mortgage equals the possible home equity line of credit.
Which of the following statements is not true?
Bankruptcy courts treat gift cards as secured debt.
Economists now recognize _______ ______ as a major force in the US Economy
Consumer Credit
Which of the following is the main advantage of credit?
Credit allows you to enjoy goods and services now and pay later.
True or false: Credit cards are not particularly common among consumers.
False
True or false: The Fair Credit Reporting Act was enacted in 1960.
False
True or false: The three names of the major credit reporting agencies are Trans Union, Equifax, and Experiment.
False Reason: The third agency is Experian.
Why should you care how to use credit?
If you misuse credit, you will pay for it with future income, and it could take many years to pay off the debt.
Which of the following is NOT true?
Most credit card companies do not offer a grace period
How can a consumer get a credit card if they have bad credit?
The consumer may be able to get a secured credit card from a savings institution.
True or false: A credit bureau is a reporting agency that collects credit and other information about consumers.
True
True or false: Credit is defined as an arrangement to receive cash, goods, or services now with payment in the future.
True
True or false: Feeling bored and purchasing all 25 sets of dishes from a television shopping channel, just to have them, is a sign of compulsive shopping.
True
True or false: To opt out from prescreened solicitations, you may notify the credit reporting agencies via mail.
True
Can credit cards be issued to consumers who have been irresponsible with credit?
Yes, the bank will extend a credit limit up to the balance of a connected savings account.
What is interest?
a periodic charge for the use of credit
What is a credit bureau?
a reporting agency that collects information on how promptly people and businesses pay their bills
Disadvantages of travel and entertainment cards include:
a requirement for the balance to be paid in full.
An arrangement whereby borrowings are permitted up to a specified limit and for a stated period is known as:
a revolving line of credit.
With a maxed-out credit limit, paying the minimum credit card payments each month is an example of:
a serious long-term financial problem.
The term consumer credit describes:
amounts owed on credit cards. loans to families for automobiles.
Typically, qualified cosigners:
are able to pay loan payments.
When cosigners sign their loans, they:
are stating that they are able to pay for the loan if required.
What generation holds the majority of consumer credit?
baby boom generation
Which of the following is not a valid reason for using credit?
borrowing for everyday expenses
A home equity loan can be seen as:
borrowing money against the value of your house.
A smart card is also known as ______.
chip card
A loan for a motorcycle is an example of ______.
closed-end credit
Installment cash credit is a form of what kind of credit?
closed-end credit
Credit card fraud affects:
credit card holders.
If you apply for a charge account, the creditor will check your _____.
credit score
What are responsible purchases with a home equity loan?
educational expenses home improvements
Customers with previously approved credit may receive other ___, such as advance notice of sales.
extras
What does consumer credit refer to?
families using credit for personal reasons
What is typically in a credit file?
former address whether you rent or own your home whether checks have been returned for insufficient funds employer information
Which of the following should you consider when determining whether you can afford a loan?
funds remaining for other expenses your monthly expenses your monthly pay
Credit allows you to buy clothes today and pay for them in the_______
future
Closed-end credit is paying back a loan:
in a specified period of time and in payments of specified amounts.
Purchasing a house for your growing family is an example of how credit can be used advantageously because doing so:
increases your overall well-being.
A loan from the bank for personal use is considered _____ cash credit.
installment
What are the three types of closed-end credit?
installment sales credit installment cash credit single lump-sum credit
Examples of individuals who are legally able to look at your credit report are:
insurance underwriters. financial services, if applying for a loan. in association with some legitimate business need.
A credit limit can also be called _____.
line of credit
A bank line of credit is also known as ______.
revolving check credit
People who shop impulsively and often use a great deal of credit are called ______.
shopaholics
A card that is usually prepaid and tracks the balance available for you to spend is a _____.
stored value card
One advantage of a T&E card is that:
they help with replacing lost passports.
When making online purchases, you should:
use a secure browser, keep a record of the purchase, and review your statement.
Examples of protecting against fraud are:
-be sure your credit card is returned to you after a purchase -not giving your card number over the phone unless you have initiated the call
What are the effects of credit card fraud?
-higher interest rates for consumers -higher prices for consumers
The main differences between annual fees and transaction fees are:
-the number of charges. -the frequency of charges.
What types of services are provided by credit card companies?
-the right to order by phone -advance notice of sales -right to buy on approval
Examples of open-end credit are:
-using a bank credit card. -department store credit card. -overdraft protection.
When evaluating a home equity loan, which of following should be examined?
-whether payments are applied to interest only -hidden fees -terms and condition changes
The maximum debt payment-to-income ratio that is acceptable is around ____%. This is found in the discussion of debt payments-to-income ratio.
Blank 1: 20 or twenty
An example of _______ -end credit is an automobile loan, whereas an example of _______ -end credit would be a credit card.
Blank 1: closed Blank 2: open
One convenient aspect of using credit is that multiple charges can be accumulated and paid in one monthly_______
Blank 1: payment, bill, check, installment, or sum
A credit file contains your detailed _____ information
Blank 1: personal, financial, credit, or private
A credit file contains your detailed ______ information.
Blank 1: personal, financial, credit, or private
Which of the following is the best description of the importance of consumer credit in the United States?
Consumer credit is a major force in the U.S. economy.
What are ways to protect against credit card fraud?
Don't give your card number over the phone unless you initiate the call. Reviewing your billing statements. Shred anything with your account number on it.
Which of the following are the names of credit bureaus?
Experian TransUnion Equifax
True or false: A home equity loan is never set up as a revolving line of credit where borrowings are allowed up to a specified limit and for a stated time period.
False
True or false: An individual should get intimidated by emails that warn of dire consequences for not following the sender's instructions.
False
True or false: You should deplete your savings to finance a purchase.
False
What is the problem with being irresponsible with credit?
Irresponsibility can lead to long-term debt and financial difficulty.
Which of the following is not an advantage of using credit?
Misuse of credit can lead to long-term financial problems.
Purchasing gas, food, school books, and coffee on your Visa card are examples of what kind of credit?
Open-end credit
Which of the following is a disadvantage of paying the minimum payments on credit cards?
The payment pays for interest and very little of the balance due.
What is the trade-off for using credit?
Tie up some of future income.
True or false: A reliable way to see if you can afford a loan is to determine what you will give up to make the monthly loan payment.
True
True or false: Credit cards can be convenient since you need a credit card to make a hotel reservation.
True
True or false: It is important to evaluate the reason for taking a home equity loan.
True
True or false: The base computation for a home equity loan is the current market value of the home less the amount you still owe on your mortgage.
True
True or false: The grace period is the time allowed to pay the balance on a credit card before interest accrues.
True
True or false: The lender can sue and collect the total amount from the cosigner of the loan.
True
An arrangement whereby borrowings are permitted up to a specified limit and for a stated period is known as: Multiple choice question. credit card limits.
a revolving line of credit.
The Credit Reporting Agency can disclose history of more than 10 years when:
an individual is being investigated for more than $75,000. an individual is purchasing life insurance for $150,000 or more.
Spending all of your money on credit card bills will:
leave you with no spending money.
What type of credit is a home equity loan?
open-end credit
If an unauthorized person(s) accesses your credit report, they could:
pay a fine. receive jail time.
Convenience users:
pay off the credit balance each month in full.
What is the difference between convenience users and borrowers?
payment of the full balance versus carrying over a balance
What is an irresponsible use of credit?
purchasing goods until you reach the point of filing bankruptcy
The Fair Credit Reporting Act of 1971:
regulates the use of credit reports, requires deletion of obsolete information, and allows access of their files to consumers.
When reporting suspicious emails or calls from third parties (found in the discussion of what's phishing?):
report this to the Federal Trade Commission.
Opting out is:
requesting removal of your name from mail and phone lists that solicit for credit offers.
The bank will not loan as much money when:
the individual is a risk to the bank.
If the primary borrower misses a payment:
the lender has the right to collect the entire debt immediately from the cosigner if a payment is missed.
The difference between a smart card and a regular credit card is:
the metallic chip embedded on the front of the smart card.
Which of the following is an example of using credit to better your life financially?
to attend college
To calculate the debt payments to income ratio:
total monthly debt payments (excluding home mortgage) are divided by net monthly income.
Some credit cards charge no annual fee, but instead charge a _____.
transaction fee
