Credit Cards
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?
"Put it on my debit"
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?
$150
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?
$160
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?
Affinity card
The Truth In Lending Act requires that all consumer credit agreements disclose the ________ in bold print?
Annual Percentage Rate (APR)
Your credit score may affect how much you pay for health insurance.
False
For the convenience credit card user the interest rate is
Irrelevant
Which of the following statements is most correct regarding a secured credit card?
It is useful to someone who has bad credit or no credit established yet.
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.
Most banks eliminate their grace period on new purchases if you don't pay your balance in full.
A convenience user doesn't really care what the APY is on their credit cards.
True
According to a Nellie Mae study, 93 percent 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.
True
Crystal tried to use her Macy's credit card at Target but was unsuccessful because her Macy's credit card is a single−purpose card and can only be used at Macy's.
True
Due to compounding frequency, the actual interest rate or APY you pay is higher than the advertised interest rate or APR.
True
One of the more important factors in determining your credit score is the length of your credit history.
True
Taking a cash advance on your credit card for daily living expenses may not be a wise financial decision because interest begins on the cash advance balance amount immediately.
True
One of the five C's of credit is capacity. Most likely, what information would potential creditors consider in evaluating your capacity?
Your leverage ratios Your liquidity ratios
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
APR on the unpaid balance
Typically, the credit card issuer allows you a grace period, which means
you are not charged any interest during this grace period, you must pay your balance off in full to benefit from the grace period.
When you withdraw cash from an ATM using your credit card
you begin paying interest immediately.
Your credit card company cannot increase your rate for the first 12 months after you open an account unless
your card's introductory rate expires and your rate reverts to the "go−to" rate the company disclosed when you got the card.
One of the following lists constitutes the five Cs of credit. Select the correct one.
Character, capacity, capital, collateral, conditions
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?
Become a convenience user, and maintain just one credit card, Take out an equity loan on the house, Cash out his CD and pay down his credit cards, Seek out a non−profit credit counseling company.
To a credit user, the perks and benefits are the most important determinant when choosing a credit card.
False
Consider the "Five Cs of Credit." The category that considers your current income level and current borrowing level is
Capacity
Consider the "Five Cs of Credit." The category that considers the size of your investment holding or portfolio is
Capital
Which of the following apply to getting a cash advance with a credit card?
Cash advances are available at ATM machines, You begin paying interest immediately, The interest rate may be higher than on regular purchases, There may be a cash advance fee. All of the above
Which of the five Cs of credit would your actual home be in relation to your mortgage?
Collateral
________ is not information generally found in your credit report.
College attended, grades, etc.
Changes to credit card policies and rates are usually announced via "bill addendums," which are notices enclosed with your bill.
False
Credit card issuers are free to set up shop near large university campuses and offer free gifts−anything from free or discounted flights to free Frisbees.
False
Credit purchases made for personal needs like home mortgages or car loans are referred to as revolving credit.
False
Everyone who accessed your credit report within the last seven years appears in an "inquiry" list that appears on your credit report.
False
It is against the law for your potential employer to use your credit score for employment considerations.
False
Most credit users are more interested in free benefits than low APRs.
False
Non−profit Credit Counselors should be avoided due to their high fees.
False
One of the unpleasant secrets of using your credit card for a cash advance is that the APR on the cash advance is typically lower than the APR for normal purchases.
False
Only a Credit Repair company can remove inaccurate data from your credit report.
False
Which of the following regarding credit application analysis is incorrect?
None of the above statements is incorrect; all of the above are true statements.
Having completed a personal finance class, you are now ready to give some advice to your free−spending friends. Which one is unwise?
Quit using credit cards altogether.
Which of the following is the best strategy for controlling and managing your credit cards and open debt?
Resolve billing errors, Protect against fraud, Look for trouble signs in credit card spending, Reduce your balance.
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.
T&E
Your credit score affects
the amount of junk mail offering additional credit cards that you receive, the size of your credit line, the rate you pay on your credit cards, your mortgage rate. All of the above are correct answers.
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?
merchant discount fee
The ________ is the percentage of the credit card sale that the retailer owes to the credit card company.
merchant's discount fee
Credit scoring is
not a flawless method of determining creditworthiness.
One of the unpleasant secrets about using your credit card for a cash advance is that
payments do not apply to cash advance balances unless the balance for regular credit purchases is zero.
Credit cards are a form of ________ credit.
revolving
Which of the following is a disadvantage of credit cards?
The finance charge that accrues on the account if not paid off in full each month
The lowest FICO a consumer can achieve is
300
According to the Keown book, the national average FICO score is around
711
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
Affinity cards
Which method sums the outstanding balances owed each day during the billing period and divides by the number of days in the period?
Average daily balance
The ________ provides a single location for financial protection and oversight−and its mandate is to help consumers make better decisions.
Consumer Financial Protection Bureau (CFPB)
The process of mathematically evaluating your creditworthiness to obtain credit is called
Credit scoring
The average daily balance method calculates interest payments based on the ending balance of the previous period.
False
There is no cash advance fee when you use your credit card at an ATM machine.
False
Using your credit cards for cash advances is a relatively cheap way to borrow money because you usually do not start paying interest until the next billing period.
False
________ 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.
Identity theft
Which of the following are important to convenience users of credit cards?
Low annual fee, Card benefits and perks, Interest−free grace period All of the above
What rights would a college friend of yours have whose credit card application was denied?
The right to point out errors in her file, The right to have the file be accurate, The right to request mistakes in the file be corrected, The right to view her credit report All of the above are correct answers.
Which of the following is an advantage of credit cards?
They allow the consumer the ability to rent cars 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?
They are saving on the merchants discount fee so they pass the savings on to you.
What is the main distinguishing feature(s) for T&E cards?
They do not offer revolving credit, The full balance must be paid each month.
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?
To make sure that there are no errors on it, To make sure that someone has not stolen your identity, To challenge any unauthorized entries All of the above are good reasons.
A convenience user of credit cards is someone who pays off the credit card balance each month.
True
A credit bureau is a private organization that maintains credit information on individuals, which it allows subscribers to access for a fee.
True
A secured credit card is a good tool to help establish credit.
True
A single−purpose card is a credit card that can be used only at a specific company.
True
Financially savvy people take advantage of the grace period on major purchases and pay the balance off in full; thus avoiding finance charges.
True
For the average consumer there is usually a set limit on open or revolving credit accounts.
True
Late library fines and unpaid parking tickets can hurt your credit score.
True
Your credit card company is required to send you a notice 45 days 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.
True
When you find you cannot pay your credit card bills you must take action! Which option is advisable?
Use savings to pay off some or all of current credit card debt, Adjust your budget to allow for more money to pay for the cards, Change to a less expensive credit card or cards, Use a secured loan or home equity loan to get a lower interest rate to pay the cards off. All of the above
Angela noticed a list of creditors at the bottom of her credit report. Some of the inquiries were voluntary and some were involuntary. What is the difference between the two?
Voluntary inquiries are due to your own credit requests; while involuntary inquiries are typically by creditors who seek to offer you a preapproved credit offer.
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.
annual percentage rate (APR)
A low FICO score
can cost you quite a bit when you get a mortgage loan.
A company that gathers and sells consumers' financial history to creditors is a
credit bureau.
Getting a credit card while a college student is an excellent idea because
it helps you learn about credit, you can shop online and make reservations, it works well for emergencies, when used correctly it allows you to build up a solid credit history.
The Consumer Financial Protection Bureau was created with the oversight authority necessary to ensure that
the prices and risks for credit products and other consumer financial services are easy to understand, consumer financial markets work, the prices and risks for mortgages, credit cards, and other kinds of financial products and services are clear.
By law you have certain rights in connection with the credit bureau. They are
the right to view your personal credit report, the right to request the credit bureau to correct mistakes in your file, the right to file a statement presenting your view of a disputed issue, the right to point out errors found in your file.
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?
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, 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.