(intro) 11. Credit and Debt Management

Retail Theft

. Customer records are stolen by employees.

How can excessive debt be avoided? Click all that apply. A. By keeping adequate liquidity assets B. By keeping debt repayment obligations lower than your pay C. By keeping low liquid assets D. By having total liabilities exceed total assets

A & B

Variable-Rate

A consumer loan with variable interest payments

What are the three nationally recognized credit reporting agencies? A. Trans Union B. Moody's C. Equifax D. Experian

A. Trans Union, C. Equifax and D. Experian

All states use the federal property exemptions, but states have the right to opt-out of the federal exemptions and have their residents use the state list of exemptions instead. A. True B. False

A. True

Privacy notices are designed to do which of the following? A. Explain how a financial institution collects, protects and discloses personal financial information. B. Give customers an opportunity to opt-out of sharing their personal information with third parties. C. Explain a company's privacy policy to consumers by giving them an initial notice at the beginning of the engagement, and annually.

A. and B.

Why are home equity loans popular? A. They are usually available at a low interest rate. B. They may provide tax benefits if used for home improvements. C. They involve long-term payments. D. They put your home at risk.

A., B. and C.

What does a credit counselor do? A. Helps sell assets and pay off debts. B. Develops personal budgets. C. Develops a workable plan to pay off your debts. D. Advises in bankruptcy situations.

B. Develops personal budgets and C. Develops a workable plan to pay off your debts.

In bankruptcy, IRA protection is limited to an aggregate account value of $1,362,800 for which types of IRA accounts? A. SEP IRA B. Traditional IRA C. Roth IRA D. SIMPLE IRA E. IRA rollovers from qualified employer retirement plans

B. and C.

In Chapter 7, which of the following types of debts cannot be discharged by bankruptcy? A. Credit card bills B. Student loans C. Child support payments D. Debt incurred by farmersE. Secured debt with collateral

B., C., D. and E.

What can be analyzed using ratios? Select all that apply. A. The inflation rate B. To compare data in your balance sheet and income statement with a preset target C. The raw data in your balance sheet D. The raw data in your income statement

B., C., and D.

Which of the following is an example of an unsecured loan? A. Boat loan B. Home mortgage C. Credit card D. Automobile

C. Credit card

What does the Equal Opportunity Credit Act (ECOA) ensure? A. That you receive credit reports regularly. B. That you are entitled to a fair and accurate credit report if you are denied credit. C. That you cannot be denied credit because of your race, color, age, sex, or marital status. D. None of the above.

C. That you cannot be denied credit because of your race, color, age, sex, or marital status.

Installment

Calls for repayment of both interest and principal at regular intervals

John and Mary purchase a new washer and dryer on credit. The terms of repayment are set at the time they sign the application. What type of credit account did John and Mary establish? A. Revolving Credit B. Regular Credit C. Open-end Credit D. Closed-end Credit

D. Closed-end Credit

For which of the following is the debt resolution rule used? A. All the above B. To calculate outstanding debt obligations C. To calculate debt ratio D. To help control debt obligations

D. To help control debt obligations

Computer Crime

Hackers access personal data through email and viruses.

Business Security Breaches

Hackers obtain customer data files from companies.

Phishing

Individuals respond to bogus email links and reveal personal information.

Single-Payment

Paid back in a single lump-sum payment at maturity

Equal Credit Opportunity Act

Prohibits the discrimination on the basis of sex and marital status.

Fair Debt Collection Practices Act

Prohibits unfair, abusive and deceptive practices by debt collectors.

Truth in Lending Act

Requires lender to disclose the true cost of consumer credit.

Unsecured

Requires no collateral

Fair Credit billing Act

Sets procedures for billing errors on open credit accounts.

Which credit agreement requires a separate retail installment contract for each purchase and are usually used for large amounts and longer periods of time? a. Closed-end account b. Revolving account c. A regular account d. Open-end account

a. Closed-end account

Which of the following types of home equity loans offers a fixed interest rate for the loan repayment term? a. Closed-end credit b. Open-end credit

a. Closed-end credit

Which of the following would be subject to an automatic stay under Chapter 7 or Chapter 13 bankruptcy? a. Foreclosures b. Child support payments c. Criminal suits d. Alimony

a. Foreclosures

To assess a borrower's ability to repay credit, lenders will review i. consistency. ii. character. iii. capacity. iv. capital. a. II, III, and IV b. II and IV c. III only d. I, II, III, and IV

a. II, III, and IV

A 30-year mortgage at 3.25% rate would be categorized as a i. Balloon Loan ii. Unsecured Loan iii. Secured Loan iv. Fixed-rate Loan a. III and IV b. I and II c. I and III d. IV only

a. III and IV

Select the interest rate that banks charge to their most creditworthy customers. a. Prime rate b. Discount rate c. Fixed rate d. Fed Funds rate

a. Prime rate

Is an individual likely to qualify for a mortgage of $875 per month with total annual income of $60,000 and other debt obligations of $750 per month? a. Yes b. No

a. Yes The mortgage debt to income ratio is in line with the 28% benchmark ($875/$5,000 = 17.5%). When combined with other debt obligations of $750 per month, the total debt to income ratio meets the benchmark of no more than 36% ($1,625/$5,000 = 32.5%).

Is a small financial planning practice with no affiliates considered a financial institution under the Privacy Rule under the Gramm-Leach Bliley Financial Modernization Act of 1999? a. Yes b. No

a. Yes The size of the financial planning practice and number of affiliates is not relevant under the Privacy Rule.

Under the provisions of the Equal Credit Opportunity Act (ECOA), a potential borrower must receive a response from a creditor within _________ after an application indicating whether the request has been approved or denied. a. 7 days b. 30 days c. 60 days d. 14 days

b. 30 days

Which of the following is not a form of revolving credit? a. Credit cards b. 48-month installment note c. Personal line of credit d. Home equity line of credit (HELOC)

b. 48-month installment note

Which of the following types of bankruptcy requires the debtor and an attorney draw up a repayment plan based on the debtor's income, which includes wages, benefit payments and rental income? a. Chapter 12 b. Chapter 13 c. Chapter 7 d. Chapter 11

b. Chapter 13

The privacy protection provisions of the Gramm-Leach Bliley Financial Modernization Act of 1999 (GLB Act) include each of the following EXCEPT: a. Pretexting Provisions b. Confidentiality Clauses c. Safeguards Rule d. Financial Privacy Rule

b. Confidentiality Clauses

Each of the following are major credit reporting agencies EXCEPT a. Experian b. Federal Deposit Insurance Corporation c. Equifax d. TransUnion

b. Federal Deposit Insurance Corporation

Choose the type of open-end credit that is secured by your ownership in your home. a. Second mortgage b. Home equity line of credit c. Home equity loan d. Cash-out refinance

b. Home equity line of credit

Is an individual likely to qualify for a mortgage of $960 per month with total annual income of $48,000 and other debt obligations of $850 per month? a. Yes b. No

b. No The applicant is not likely to qualify for a mortgage loan payment of $960 per month. While the mortgage debt to income ratio is in line with the 28% benchmark ($960/$4000 = 24%), when combined with other debt obligations of $850 per month, the total debt to income ratio does not meet the benchmark of no more than 36% ($1,810/$4000 = 45%). A lender would likely want other debt to be paid down or require a larger down payment to bring the total debt ratio below 36%.

Each of the following are disadvantages of using credit except: a. Temptation to overspend b. Quick access to credit provides funds that could be used in case of an emergency c. Temptation to overspend Associated costs of using credit d. Less flexibility with budget

b. Quick access to credit provides funds that could be used in case of an emergency

Which of the following is considered a liquidation type of bankruptcy procedure and eliminates a consumer's debt by having a trustee sell some of the debtor's personal property to repay their creditors? a. Chapter 13 b. Chapter 12 c. Chapter 7 d. Chapter 11

c. Chapter 7

Which of the following is not one of the nationally recognized consumer credit reporting agencies? a. Experian b. TransUnion c. Moody's d. Equifax

c. Moody's

In providing privacy protection to customers, which of the following may be considered public information? a. The fact that someone is a customer of a financial institution b. Information the customer provides on an application c. The customer's telephone number d. Information from a "cookie" obtained by using a website

c. The customer's telephone number

A long-term debt coverage ratio below ____ is not financially desirable. a. 1.0 b. 1.5 c. 2.0 d. 2.5

d. 2.5

The debt resolution rule forces you to repay all your outstanding debt obligations every ______. a. 2 years b. 3 years c. 1 year d. 4 years

d. 4 years

Each of the following is afforded an exemption for bankruptcy proceedings, meaning the debtor can keep the property regardless of whether the creditors are paid except: a. Home b. Pension c. Public benefits such as Social Security d. A second automobile

d. A second automobile

Which of the following practical steps may help an individual improve her credit score and chances of receiving new credit? a. Open both checking and savings accounts and make regular deposits b. Open a retail credit account with a local store c. Qualify and accept a small installment loan d. Each of these steps may help improve a credit score

d. Each of these steps may help improve a credit score

If a potential borrower is denied credit, this law ensures that an accurate credit report is provided. a. Truth in Lending Act b. Equal Credit Opportunity Act (ECOA) c. Fair Debt Collection Practices Act d. Fair Credit Reporting Act of 1971

d. Fair Credit Reporting Act of 1971

Which of the following is NOT included in the Debt Limit Ratio? a. Personal Loans b. Credit Card Balances c. Auto Loans d. Mortgage Payments

d. Mortgage Payments

Identify the type of identity theft in which individuals respond to bogus email messages that resemble emails from legitimate companies, asking for updated information. a. Computer crime b. Retail theft c. Personal theft d. Phishing

d. Phishing

If discrepancies are discovered on one's credit report, to whom must the individual report the discrepancies to dispute the inaccurate reporting? a. The company that granted the credit b. The company that reported the inaccurate information c. The individual's local bank representative d. The credit reporting agency

d. The credit reporting agency

Which of the following laws requires lenders to disclose the cost of consumer credit, applicable charges, terms and conditions? a. Fair Credit Reporting Reform Act b. Fair Credit Billing Act c. Equal Credit Opportunity Act d. Truth in Lending Act

d. Truth in Lending Act

Each of the following are advantages of credit EXCEPT a. emergency fund. b. convenience. c. inflation hedge. d. associated costs.

d. associated costs.