FINN 1003 (CHAPTER 5)

96. What step can you take if your credit application is denied?

A. Sue the credit rating agency B. File a complaint against the merchant D. Reapply for credit once 30 days have passed E. Borrowers do not have any rights provided by law C. Ask why you were denied credit

62. Many think that perhaps the greatest disadvantage of using credit is

A. The temptation to overspend.

65. Before buying goods and services on credit, a consumer should consider all except:

A. Whether they will have lasting value B. Whether they will increase personal satisfaction during present income periods C. Whether they will increase personal satisfaction during future income periods D. Whether current income will continue or increase E.Whether the good or service will be worth more because they were purchased with credit instead of cash

82. Bankruptcy courts treat gift cards

C. The same way they handle unsecured debt

85. If you have reached the upper limit of debt obligations, your debt-to-equity is about

E. 1

58. When used effectively, credit can result in

E. Improved lifestyle

69. A loan that must be repaid in total on a specified day, usually within 30 to 90 days is

E. Single lump-sum credit

22. Experts suggest that you spend more than 20 percent of your after-tax (net) income on consumer credit payments.

FALSE

31. The higher your FICO score, the more risk you pose to creditors.

FALSE

45. According to law, a creditor may threaten your credit rating while you are negotiating a billing dispute.

FALSE A creditor may not threaten your credit rating during this time.

34. A bankruptcy remains on a credit file for no more than 5 years.

FALSE Bankruptcies remain on a credit file for 10 years.

27. In the five Cs of credit, conditions refer to what will happen if the borrower does not repay the loan.

FALSE Conditions refer to general economic conditions that can affect a borrower's ability to repay a loan.

3. Consumer credit allows businesses to be more efficient or more productive.

FALSE Consumer credit allows consumers to be more efficient.

1. Consumer credit refers to the use of debit cards for personal needs.

FALSE Consumer credit refers to the use of credit.

6. A trade off of credit is that it increases the amount of money that will be available to spend in the future.

FALSE Credit decreases the amount of money that will be available in the future.

10. Although credit allows immediate satisfaction of needs and desires, a greater advantage is that it increases total purchasing power.

FALSE Credit does not increase total purchasing power.

7. A disadvantage of using credit is its use when making a hotel reservation.

FALSE Credit offers the convenience to make a hotel reservation.

11. Closed-end credit consists of loans made on a continuous basis with periodic bills for at least partial payment.

FALSE Definition is for open-end credit.

8. During the grace period, finance charges are assessed at only half the normal rate.

FALSE Finance charges are not assessed during the grace period.

19. Interest paid on a credit card is tax-deductible.

FALSE Interest on home equity loans is tax deductible.

42. The expected rate of inflation should not be considered when determining the amount of interest a creditor should charge.

FALSE Lenders incorporate the expected rate of inflation when deciding how much interest to charge.

40. The amount of interest paid is independent of the length of the loan.

FALSE Longer loans require more interest to be paid.

15. A consumer applies for open-end credit to make a single purchase, such as a large appliance.

FALSE Open-end credit does not require an application for each purchase.

37. The Annual Percentage Rate is lower than the stated rate for loans that are repaid in monthly payments.

FALSE The APR for these loans is higher than the stated rate.

28. The Equal Credit Opportunity Act requires that a lender not turn you down for credit based on your age as long as you are old enough to sign a legal contract, which is usually allowed at age 16.

FALSE The age to sign a legal contract is usually 18 - 21 years.

46. According to the Fair Credit Billing Act from 1975, a creditor must adjust the disputed amount in your account or tell you why the bill is correct within 30 days.

FALSE The creditor must take this action within two billing periods, but not longer than 90 days.

18. The easiest loans to obtain are also the least expensive.

FALSE The easiest loans are also the most expensive.

39. The add-on interest calculation uses the formula: Interest = Principal × Rate of interest ×Time

FALSE The formula is correct for Simple Interest.

43. The longer it takes for you to pay off a bill, the less interest you pay.

FALSE The longer it takes to pay, the more interest to be paid.

51. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made it easier for consumers to file Chapter 7 bankruptcy.

FALSE The new law made it more difficult for consumers to file a Chapter 7 bankruptcy and forces them into a Chapter 13 repayment plan.

23. The debt-to-equity ratio is calculated by dividing your total liabilities, including mortgage, by net worth.

FALSE The ratio excludes mortgage.

17. The most expensive loans are often provided by parents or other family members.

FALSE These are the least expensive loans.

26. In the five Cs of credit, capital refers to the borrower's ability to pay additional debts.

FALSE This refers to capacity.

25. In the five Cs of credit, capacity refers to the borrower's trustworthiness and stability.

FALSE This refers to character.

21. A secured credit card is most appropriate for someone with a strong credit background.

FALSE This type of card would be most appropriate for someone with a bad credit history.

30. FICO is a better score to use than VantageScore for consumers with limited credit histories.

FALSE VantageScore allows for a more predictive score for consumers, even for those with limited credit histories.

36. You have a legal right to sue a credit bureau if you observe an error in your file.

FALSE You have a legal right to sue if the credit bureau has not followed the rules established by the Fair Credit Reporting Act.

32. A credit file can include your spouse's name and Social Security number.

TRUE

33. The Fair Credit Reporting Act, enacted in 1971, places limits on who can obtain your credit report.

TRUE

38. The longer the term for a loan at a given interest rate, the higher the overall interest charges.

TRUE

4. Economists recognize consumer credit as a major force in the American economy.

TRUE

41. The Truth in Lending Act requires that creditors explain how they calculate the finance charge.

TRUE

44. If you purchase something with a credit card, the finance charges you pay on an item could end up being more than the item is worth.

TRUE

47. According to the Fair Credit Billing Act from 1975, a consumer may tell his credit card company to stop payment for a defective good if he made a sincere attempt to resolve the problem with the store.

TRUE

49. If you are a cosigner for a loan and the debt is not repaid, then that fact will appear on your credit report.

TRUE

5. When used effectively, credit can help a consumer have more and enjoy more.

TRUE

50. You should keep a record of your credit card number separate from your card.

TRUE

9. Credit can indicate stability since lenders consider you a good risk.

TRUE

35. Most information in your credit file may be reported for only 7 years.

TRUE Most information is removed after 7 years; however, bankruptcies remain on a credit file for 10 years.

29. FICO and VantageScore are two methods used to judge creditworthiness.

TRUE

76. Home equity loans should be used for

C. Major expenses such as home improvements or education

71. A line of credit is

D. The maximum dollar amount of credit the lender has made available

83. Before taking out a loan, you should ask yourself whether you can meet all of your essential expenses and still afford the monthly loan payments. This can be determined by:

A. Adding up basic monthly expenses then subtracting this total from take-home pay. B. Asking what you plan to give up to make the monthly loan payment. C. Multiplying your take-home pay by 50 percent and subtracting your current loan payments. D. A and B are correct.

95. When evaluating your credit application, a lender may NOT

A. Ask your date of birth C. Request a list of the ages of your dependents D. Inquire if you ever received credit before from that lender E. Ask the income of your spouse, if you have a joint application B. Deny you if you receive public assistance

63. Failure to repay a loan may lead to all except:

A. Bankruptcy. B. Loss of income. C. Loss of a good reputation. D. Damage to family relationships. E. All of the answers may be a result of the failure to repay a loan.

100. Credit bureaus get their information from all of the following except:

A. Banks B. Credit card companies C. Finance companies E. Stores D. References

87. The question "will you repay the loan?" relates to

A. Character

70. Molly purchased a $1,500 HDTV from Best Appliances. She will make 12 equal payments over the next year to pay for it. She is using

A. Closed-end credit

91. The Equal Credit Opportunity Act (ECOA) prohibits a lender from discriminating based on

A. Race B. Nationality C. Age D. Sex E. All of these are prohibited.

59. Which of the following is NOT correct?

A. Credit can result in a greater chance of bankruptcy. B. Credit can decrease the amount of money that will be available to spend in the future. C. Credit offers convenience when shopping on the Internet. E. Credit allows a consumer to shop without carrying a large amount of cash. D. Credit cards typically offer a "float" of up to 10 days. Credit cards can provide a float up to 50 days.

81. Which of the following electronically subtracts money from your savings or checking account to pay for goods and services?

A. Credit card B. Closed-end credit D. Gift card E. Home equity loan C. Debit card

86. When calculating the debt-to-equity ratio, the following is NOT included:

A. Credit card balances B. Open-end credit C. Auto loan balances E. All of the above are included in the calculation D. Mortgage balance

98. A credit report includes

A. Credit history B. Assumptions made by credit rating agencies C. Credit score D. Credit expectations E. All of the above

60. Which of the following is NOT correct?

A. Credit is appropriate to pay for medical emergencies. C. Credit sometimes occurs automatically, such as for telephone usage. D. Credit usually makes returning merchandise easier than returning cash purchases. E. Credit allows consumers to enjoy goods and services now and pay later. B. Credit can increase the amount of money that will be available to spend in the future.

92. Which of the following is the best scoring technique used in credit applications for consumers with limited credit histories?

A. CreditHistory B. CreditReport C. FICO D. LimitedCredit E. VantageScore

57. Which of the following questions is NOT needed before deciding how and when to make a major purchase?

A. Do I have the cash I need for the down payment? B. Does the purchase fit my budget? C. Could I postpone the purchase? D. Could I use the credit I need for this purchase in some better way? E. All of the above are valid questions to ask.

99. Which of the following is NOT a credit bureau?

A. Experian B. Equifax C. Trans Union E. All of the above are credit bureaus D. FICO

80. Which of the following is NOT associated with credit cards?

A. Grace period B. Finance charge C. Annual fee D. Convenience users and borrowers E. Down payment on a home

94. Which of the following is NOT a valid credit application question?

A. How much of a loan are you requesting? B. What is the account number for your checking account? C. What is the name of the nearest relative not living with you? D. How many dependents do you have? E. All of the above are valid credit application questions.

66. Which of the following is an example of closed-end credit?

A. Mortgage B. Department store credit card C. Overdraft protection D. Line of credit E. All of the above are examples of closed-end credit

54. Which of the following is a valid reason for borrowing?

A. Purchasing a new dishwasher B. Borrowing for a college education C. Purchasing a home D. Paying for a medical emergency E. All of the above are valid reasons for borrowing

56. Many people expect

B. Their incomes to increase to make it easier to make payments

84. Experts suggest that the debt payments-to-income ratio should be a maximum of

B. 20 percent

52. Installment credit exploded on the American scene with the advent of the

B. Automobile Installment credit exploded on the American scene in the early 1900s.

90. A loan officer is examining whether or not he/she will offer you a loan today. Specifically, he/she is examining your income and debts. Which of the five Cs is the loan officer reviewing?

B. Capacity

79. A credit cardholder who pays off his balances in full each month is known as

B. Convenience user

64. Consumer credit

B. Dates back to colonial times.

67. Which of the following is an example of open-end credit?

B. Department store credit card A. Automobile loan C. Installment loan for purchasing furniture D. Mortgage E. Single lump-sum credit

77. Home equity loans

B. Have interest that is tax-deductible

68. A direct loan for personal purposes, home improvements or vacation expenses is called

B. Installment cash credit

55. Which of the following is NOT a valid reason for borrowing?

B. Paying for everyday living expenses A. Purchasing a new dishwasher C. Buying a car to start a new job D. Paying for a medical emergency E. All of the above are valid reasons for borrowing

72. A prearranged loan up to a specified amount that a consumer can access by writing a special check is known as

B. Revolving check credit

61. A typical grace period for many credit card issuers is

C. 20 - 25 days

93. FICO scores generally range from

C. 350 to 850

53. Which of the following expressions is correct?

C. As the consumer goes, so goes the U.S. economy.

88. The question "what are your assets and net worth?" relates to

C. Capital

78. If you miss payments on a home equity loan, you can lose your

C. House

73. The periodic charge for the use of credit is

C. Interest

97. If you are denied credit, you can contact the credit bureau and ask for a copy of your credit report. The bureau cannot charge a fee for this service as long as you ask to see your files within

D. 60 days

75. A cash advance

D. Accrues interest charges beginning the day the cash advance is made

89. The use of property or savings to secure a loan relates to

D. Collateral

74. Which is often considered to offer the least expensive loans?

D. Parents or family members

12. Open-end credit consists of loans made on a continuous basis with periodic bills for at least partial payment.

TRUE

13. Closed-end credit is used for a specific purpose and involves a specific amount.

TRUE

14. Installment sales credit is a loan that allows a consumer to purchase high-priced items.

TRUE

16. The least expensive loans are often provided by parents or other family members.

TRUE

2. Consumer credit dates back to colonial times when it was extensively used by farmers.

TRUE

20. A credit card holder who pays the full balance during the grace period each month is actually getting a free loan from the credit card company.

TRUE

24. In the five Cs of credit, character refers to the borrower's trustworthiness and stability.

TRUE

48. The first sign of stolen identity might be that you get bills for a credit card account that you never opened.

True