Chapter 6

) How long do you have to begin an investigation into a billing problem under the Fair Credit Billing Act? A) 15 days B) 20 days C) 30 days D) 60 days

60 days

A(n) ________ card is a credit card that does not offer revolving credit and requires full payment of the balance at the end of each month. A) T&E B) premium C) affinity D) traditional charge account E) single-purpose

T&E

) ________ is not information generally found in your credit report. A) Employment information B) Personal credit history C) College attended, grades, etc. D) Your public financial history E) Past inquiries regarding your credit report

college attended, grades, etc.

Roxanne has always maintained an excellent credit rating over the years. She has an annual income of $23,000, has lived at her current residence three years, and has worked at the same job for eight years. Susan works in a clerical position, has two credit cards and maintains two bank accounts. Which one of the following items of evaluation would Roxanne score the highest on? A) Employment history B) Annual income C) Length of residence D) All of the above are correct answers.

employment history

) ________ occurs when someone, without your knowledge or consent, uses your name, address, Social Security number, bank or credit card account number, or other identifying information to commit fraud or other crimes. A) Phishing B) Dumpster diving C) Identity theft D) Data breach

identity theft

The ________ is the interest rate you pay on your balance if you don't make your minimum payments on time. A) penalty rate B) late rate C) cash advance rate D) over-the-limit rate

penalty rate

Michael has a credit limit and a balance of $3,000 on his Visa card. His car broke down, he charged the $500 repairs to his Visa which he knows put him over his credit limit for the month. His payment is due on the 20th so he made sure that he had his $750 payment to the post office on the 20th. Most likely, what penalties or fees, if any, will he incur? A) Only the penalty APR, depending on his credit card company. B) Only the over-the-limit fee. C) Only the late fee, since his payment will lower his balance below his credit limit. D) He will likely incur the penalty APR, as well as an over-the-limit fee and a late fee—because VISA has to receive his payment in its office by the 20th, not have it postmarked by the 20th. E) None of the above choices accurately describes the situation.

He will likely incur the penalty APR

Assuming the APR on your credit card is 18% and your average daily balance this month was $10,000, what will your interest or finance charges for the month be? A) $180 B) $60 C) $150 D) $1.50

$150

Credit card insurance is usually unnecessary since your liability on credit card losses is limited by law to A) $ 0 B) $50 C) $100 D) $500

$50

The use of credit involves receiving cash, goods, or services with an obligation to pay later. Which statement is not an opening line to the use of credit in a shopper's language? A) "Charge it." B) "Put it on my account." C) "Put it on my debit." D) "I'll pay for it with plastic."

Put it on my debit

Which of the following is the best strategy for controlling and managing your credit cards and open debt? A) Reduce your balance. B) Resolve billing errors. C) Protect against fraud. D) Look for trouble signs in credit card spending. E) All are good strategies.

all are good strategies

The Fair and Accurate Credit Transactions Act (FACT) allows everyone to a free copy of their credit report every year. Why is it a good idea to check your credit report every year? A) To make sure that there are no errors on it B) To make sure that someone has not stolen your identity C) To challenge any unauthorized entries D) All of the above are good reasons.

all of the above

Which of the following are important to convenience users of credit cards? A) Low annual fee B) Interest-free grace period C) Card benefits and perks D) Only A and B E) All of the above

all of the above

Consider the "Five Cs of Credit." The category that considers the size of your investment holding or portfolio is A) collateral. B) capital. C) capacity. D) character. E) none of the above.

capital

Credit scoring is A) quite expensive for the lender. B) not a flawless method of determining creditworthiness. C) an inefficient but necessary process. D) all of the above.

not a flawless method of determining creditworthiness.

Which of the following is a disadvantage of credit cards? A) Allows for consumption before the purchase is fully paid for B) Emergency use C) Allows for online shopping D) The finance charge that accrues on the account if not paid off in full each month

the finance charge that accrues on the account if not paid off in full each month

Typically, an annual fee charge ranges from $10 to $100, but the American Express Centurion Card charges a ________ annual fee-and there's also a ________ initiation fee for the first year. A) $0; $0 B) $25; $75 C) $250; $750 D) $2,500; $7,500

$2,500; $7,500

By law you have certain rights in connection with the credit bureau. They are A) the right to view your personal credit report. B) the right to point out errors found in your file. C) the right to request the credit bureau to correct mistakes in your file. D) the right to file a statement presenting your view of a disputed issue. E) all of the above.

all of the above

Getting a credit card while a college student is an excellent idea because A) it helps you learn about credit. B) you can shop online and make reservations. C) it works well for emergencies. D) when used correctly it allows you to build up a solid credit history. E) all of the above.

all of the above

Credit cards are a form of ________ credit. A) close ended B) revolving C) installment D) service

revolving

Which of the five Cs of credit would your actual home be in relation to your mortgage? A) Character B) Capacity C) Collateral D) Capital E) Conditions

collateral

Assuming the APR on your credit card is 24 percent and your average daily balance this month was $8,000, what will your interest or finance charges for the month be? A) $1.92 B) $240 C) $192 D) $160

$160

Assume a 31-day month to calculate your average daily balance for your credit card bill. Your daily balance for the first 10 days was $1,400, for the next 10 days was $1900, and for the last 10 days was $2700. What will your average daily balance be at the end of the month? A) $1935.48 B) $19.35 C) $193.58 D) $1.94

$1935.48

On October 1st Joe charged $900 to his credit card, on October 10th he charged another $1,300 to his credit card, and on October 15th he charged an additional $100. His credit card charges him an Annual Percentage Rate (APR) of 18% compounded monthly. Using the Average Daily Balance Method calculate Joe's finance charge for the month of October. A) $7.12 B) $28.16 C) $212.36 D) $523.14 E) None of the above are correct answers.

$28.16

Cedrick's credit card was stolen, and he did not realize that it was stolen until he received his most recent billing statement. He contacted the credit card company immediately after he read his statement. Fraudulent charges were as follows: $250 for a Blue-ray player, $600 for a new set of tires, $200 cash withdrawal, and $40 in interest charges on the above items. He did not carry credit card insurance. How much is Cedrick's potential maximum liability? A) $40.00 B) $50.00 C) $850.00 D) $1,050.00 E) $1,090.00

$50.00

Most credit cards have a ________ grace period from the date of the bill to make payments. A) 1- to 15-day B) 5- to 20-day C) 21 to 25-day D) 31- to 35-day

21 to 25-day

The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act established fee caps for cards. Card fees cannot total more than ________ of the initial credit limit. A) 25 percent B) 40 percent C) 45 percent D) 60 percent

25%

The lowest FICO a consumer can achieve is A) 250. B) 300. C) 400. D) 505.

300

Your credit card company is required to send you a notice ________ before they can increase your interest rate, change certain fees (such as annual fees, cash advance fees, and late fees), or make other significant changes to the terms of your card. A) 1 day B) 15 days C) 45 days D) 60 days

45 days

More than ________ of the 25 biggest credit card issuers do not charge annual fees. A) 30 percent B) 50 percent C) 70 percent D) 90 percent

70%

According to the Keown book, the national average FICO score is around A) 650. B) 711. C) 759. D) 777.

759

According to a Nellie Mae study, ________ of graduate students would have liked more information on financial management topics before they started school and would like financial management education made available to them now. A) 33 percent B) 53 percent C) 73 percent D) 93 percent

93%

What type of a credit card is issued in partnership with a specific charity or organization, such as Mothers Against Drunk Driving (MADD), the National Rifle Association (NRA), or a college or university? A) Prestige card B) Affinity card C) Travel and entertainment card D) Social responsibility card

Affinity card

Credit cards issued in conjunction with particular charities or organizations, like the Sierra Club or the Humane Society, that send a portion of their annual fee or percentage of their purchases back to the sponsoring organization are known as A) premium cards. B) prestige cards. C) affinity cards. D) secured credit cards.

affinity cards

The Consumer Financial Protection Bureau was created with the oversight authority necessary to ensure that A) consumer financial markets work. B) the prices and risks for credit products and other consumer financial services are easy to understand. C) the prices and risks for mortgages, credit cards, and other kinds of financial products and services are clear. D) all of the above.

all of the above

Wally currently has a balance of $14,500 on his credit cards and he is having a hard time making the minimum payments on them. He has missed several payments and is now paying the default APR of 29.99%. He and his wife own a nice home with $40,000 in equity. They have $7,500 in a certificate of deposit with a 4% APR. He has come to you in tears asking for advice. What would you tell him to do? A) Seek out a non-profit credit counseling company. B) Cash out his CD and pay down his credit cards. C) Become a convenience user, and maintain just one credit card. D) Take out an equity loan on the house. E) All of the above

all of the above

What rights would a college friend of yours have whose credit card application was denied? A) The right to view her credit report B) The right to have the file be accurate C) The right to point out errors in her file D) The right to request mistakes in the file be corrected E) All of the above are correct answers.

all of the above

When you find you cannot pay your credit card bills you must take action! Which option is advisable? A) Adjust your budget to allow for more money to pay for the cards. B) Change to a less expensive credit card or cards. C) Use a secured loan or home equity loan to get a lower interest rate to pay the cards off. D) Use savings to pay off some or all of current credit card debt. E) All of the above

all of the above

Which of the following apply to getting a cash advance with a credit card? A) Cash advances are available at ATM machines. B) You begin paying interest immediately. C) There may be a cash advance fee. D) The interest rate may be higher than on regular purchases. E) All of the above

all of the above

Your credit score affects A) the rate you pay on your credit cards. B) the size of your credit line. C) your mortgage rate. D) the amount of junk mail offering additional credit cards that you receive. E) All of the above are correct answers.

all of the above

The Truth In Lending Act requires that all consumer credit agreements disclose the ________ in bold print? A) Effective Annual Rate (EAR) B) Annual Percentage Rate (APR) C) Monthly Stated Rate (MSR) D) Nominal Interest Rate (NIR)

annual percentage rate

The main factor that determines the cost of a line of credit is the ________, which is also considered the true simple interest rate paid over the life of the loan. A) annual merchant rate (AMR) B) teaser rate C) annual percentage rate (APR) D) penalty rate

annual percentage rate

The choice of a credit card is a matter of personal credit card philosophy. If you are a credit user, the most important decision factor is the card's A) length of grace period. B) annual fee. C) APR on the unpaid balance. D) minimum payment. E) late payment fee.

apr on the unpaid balance

Which method sums the outstanding balances owed each day during the billing period and divides by the number of days in the period? A) Average daily balance B) Previous balance C) Adjusted balance D) Balance calculation method E) Simple interest

average daily balance

According to the Bankcard Holders Association of America, about 95 percent of all bank card issuers use the A) adjusted balance method. B) previous balance method. C) average daily balance method. D) daily double balance method.

average daily balance method

The CARD Act of 2009 toned down the actions of credit card issuers by A) banning the issuance of credit cards to persons under 18, unless the borrower can show proof that he or she can repay the credit card loans independently. B) banning credit card issuers from locating themselves "near campus" (defined as within 50 feet). C) banning the issuance of credit cards to persons under 18, unless someone over 25 co-signs on the account. D) banning offers of freebies such as free pizza and T-shirts.

banning offers of freebies such as free pizza and t-shirts

Changes to your credit card policies and rates are usually announced via "________"; which are notices enclosed with your bill. A) bill addendums B) policy wards C) bill stuffers D) regal notices

bill stuffers

What is the main distinguishing feature(s) for T&E cards? A) They do not offer revolving credit. B) The full balance must be paid each month. C) There is no annual fee. D) Both A and B above E) Both A and C above

both a and b

The major differences between a premium prestige card and a regular credit card include A) higher interest rates. B) higher credit limits. C) additional perks and benefits. D) both A and B above E) both B and C above

both b and c

Typically, the credit card issuer allows you a grace period, which means A) you do not have to make a payment during the current month. B) you are not charged any interest during this grace period. C) you must pay your balance off in full to benefit from the grace period. D) interest charges are reduced during this time. E) both B and C apply.

both b and c

Mary is 38 years old and many of her friends have gotten into trouble using their credit cards to buy things they can't afford. She feels lucky that her grandmother told her that credit is dangerous and that she should always pay cash for everything. So far, Mary has never had credit in her name and even paid cash for her car. From a personal finance perspective, what advice would you give to Mary? A) Nothing, it looks like we all could take advice from her! B) Make sure that you keep a lot of money in liquid investments in case of an emergency. C) It's great that you don't owe any money, but you really need to establish credit in your name so you will have it if you need it in the future. D) You might want to talk with your insurance agent because having no credit history is probably causing you to pay higher rates for your insurance. E) Both C and D would be good advice for Mary.

both c and d

One of the five C's of credit is capacity. Most likely, what information would potential creditors consider in evaluating your capacity? A) Your marital status B) Your age C) Your leverage ratios D) Your liquidity ratios E) Both C and D are correct answers.

both c and d

A low FICO score A) is a good credit score. B) can cost you quite a bit when you get a mortgage loan. C) may result in a credit card rate half the rate of that paid by those with a high FICO score. D) is the only factor the lender considers when determining whether to give you credit.

can cost you quite a bit when you get a mortgage loan

Tawnya currently has six bank credit cards, five retailer credit cards, and a T&E card left over from when she was in sales. She wants to make sure her credit score is as high as it can be. What advice would you give her to improve her credit score? A) Transfer all of her balances to the card with the lowest APR. B) Increase the credit limit on her bank cards. C) Cancel eight of the newest cards she has, keep at least one bank card. D) None of the above

cancel eight of the newest cards she has, keep at least one bank card

Consider the "Five Cs of Credit." The category that considers your current income level and current borrowing level is A) collateral. B) capital. C) capacity. D) character. E) none of the above.

capacity

One of the following lists constitutes the five Cs of credit. Select the correct one. A) Character, capacity, capital, collateral, characteristics B) Character, capacity, capital, collateral, co-insurance C) Character, capacity, capital, collateral, careful D) Character, capacity, capital, collateral, conditions E) Character, capacity, capital, collateral, credence

character, capacity, capital, collateral, conditions

The ________ provides a single location for financial protection and oversight-and its mandate is to help consumers make better decisions. A) Center For the People Bureau (CFPB) B) Consortium of Fiscal Protection Bureau (CFPB) C) Consumer Financial Protection Bureau (CFPB) D) Consumer Fiscal Protocol Bureau (CFPB)

consumer financial protection bureau

A company that gathers and sells consumers' financial history to creditors is a A) credit card company. B) credit bureau. C) credit investigation bureau. D) credit recovery firm. E) credit issuance firm.

credit bureau

The process of mathematically evaluating your creditworthiness to obtain credit is called A) credit scoring. B) credit evaluation. C) credit references. D) credit history. E) credit statistics.

credit scoring

Nico likes to go shopping. Every time he goes to a new store, he fills out an application for a store credit card so that he can get a 20 percent discount on his purchases that day. Yesterday, when he was trying to buy a new car, the dealer turned down his credit request. Nico can't understand why, because he thought he had good credit. If you looked at his credit report, what is the most likely reason he was denied credit? A) Nine years ago, a lender referred his debt to a collection agency. B) He has only worked for his current employer for nine months. C) He has too many recent inquiries on his credit report. D) There is not enough information available to answer this question.

he has too many recent inquiries on his credit report

For the convenience credit card user the interest rate is A) irresistible. B) irrelevant. C) irregular. D) intimidating.

irrelevant

Which of the following statements is most correct regarding a secured credit card? A) It is a valuable form of credit insurance — you are protected against loss if the card is lost or stolen. B) It is useful to someone who has bad credit or no credit established yet. C) It provides a higher level of user security, using technology to prevent illegal use. D) Compared to non-secured credit cards, it always carries a much lower rate of interest.

it is useful to someone who has bad credit or no credit established yet

When you use a credit card at a store, the store is generally charged a fee ranging from 1.5% to 5%. What is this fee called? A) Merchant discount fee B) Merchant back-end charge C) Merchant rate D) Discount rate

merchant discount fee

) The ________ is the percentage of the credit card sale that the retailer owes to the credit card company. A) retailer credit acceptance fee B) card usage allowance C) merchant's discount fee D) franchise fee

merchant's discount fee

Jessica always thought the grace-period feature of her credit card was a wonderful idea because her charges were interest-free during the grace period. After taking Dr. Art Keown's personal finance course, she learned this startling truth about grace periods. A) Grace periods are actually beneficial to the credit card company. B) There are higher fees associated with grace periods. C) Most banks eliminate their grace period on new purchases if you don't pay your balance in full. D) All credit cards carry a grace period.

most banks eliminate their grace period on new purchases if you don't pay your balance in full

In an emergency, you used your credit card for a $500 cash advance. You just received your statement and your total balance due is $1,859, and the cash advance was the most recent charge. You want to be sure to pay for the cash advance so you send in a payment of $700. Your credit card has an APR of 12 percent. How much of your payment will apply to the cash-advance balance? A) Because it was the most recent charge, $500 of the payment will apply to the cash-advance balance. B) It doesn't make any difference because the $1,859 balance includes the cash advance, the $700 payment will lower your total balance regardless, so the amount applied to the cash-advance balance is irrelevant. C) There isn't enough information to answer the question, because the answer depends on the cash advance's interest rate. D) None of the above

none of the above

Leon is 28 years old and pays cash for everything he buys. He has never had credit in his name and never missed or been late on any bills he has ever had. He recently went online to check what his credit score was. Where do you think his credit score would be? A) over 800 B) between 700 and 799 C) between 600 and 699 D) None of the above

none of the above

Which of the following regarding credit application analysis is incorrect? A) Bankruptcy remains a mark against you for a period of ten years after it occurs. B) Credit card issuers normally assign a minimal acceptable credit cutoff score. C) Lenders may not discriminate on the basis of age. D) You are entitled to one free copy of your credit report each year from the three major credit bureaus. E) None of the above statements is incorrect; all of the above are true statements.

none of the above

One of the unpleasant secrets about using your credit card for a cash advance is that A) there is usually a 6 to 8 percent upfront fee on the amount. B) the APR on the cash advance is typically lower than the APR for normal purchases. C) payments do not apply to cash advance balances unless the balance for regular credit purchases is zero. D) All but B apply to cash advances.

payments do not apply to cash advance balances unless the balance for regular credit purchases is zero

Having completed a personal finance class, you are now ready to give some advice to your free-spending friends. Which one is unwise? A) Reduce the credit card balance. B) Resolve any billing errors. C) Quit using credit cards altogether. D) Look for trouble signs in credit card spending. E) Control your spending through discipline.

quit using credit cards altogether

Which of the following is not a typical potential problem that can occur in a credit bureau file? A) You may be mixed up with someone else with a similar name. B) Accounts may be listed as still open that are actually closed. C) Accounts may be listed that you never had. D) The wrong credit bureau handles your case. E) A creditor may fail to report a payment or payments.

the wrong credit bureau handles your case

Which of the following is an advantage of credit cards? A) They make it easy to lose control of spending. B) In general they are an expensive way to borrow money. C) They allow the consumer the ability to rent cars and make online reservations. D) Using them means you will have less spendable money in the future.

they allow the consumer the ability to rent cares and make online reservations

Sometimes retailers will give you up to a 5% discount if you pay cash for their products instead of using your credit card. Why? A) It is just good customer service, especially for repeat customers. B) They are getting close to their monthly charge limit and don't want to go over it. C) They are saving on the merchants discount fee so they pass the savings on to you. D) Its much less paper work to process cash transactions.

they are saving on the merchants discount fee so they pass the savings to you

Research has determined that undergraduate college students tend to behave in similar manners with regards to their credit card usage. As noted in Chapter 6, which of the following behaviors are indicative of undergraduate students' credit card behaviors? A) Their parents do not frequently pay their credit card balances for them. B) They make more than their minimum payment each month but still tend to carry a balance on their cards. C) They pay off all of their cards in full each month. D) They make more than the required minimum payment on 90% of all other cards each month.

they make more than their minimum payment each month but still tend to carry a balance on their cardsd

Which of the following is not a single-purpose credit card? A) Shell Oil B) Wells Fargo Visa C) Toys R Us D) Target E) Macy's

wells fargo visa

When you withdraw cash from an ATM using your credit card A) you begin paying interest immediately. B) you are not charged any interest until after the date the payment is due. C) the interest fee is lower than that for purchases. D) you're using a relatively inexpensive way to borrow money.

you begin paying interest immediately

Your credit card company cannot increase your rate for the first 12 months after you open an account unless A) your card has a fixed interest rate tied to an index and the index goes down. B) your card's introductory rate expires and your rate reverts to the "go-to" rate the company disclosed when you got the card. C) you are more than 15 days late in paying your bill. D) all of the above.

your card's introductory rate expires and your rate reverts to the "go to" rate the company disclosed when you got the card