Personal Finance Chapter 6

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

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

You should review your credit file at a specific credit reporting agency at least ----- time(s) per year.

Blank 1: one, 1, or once

Closed-end loans are ----- loans repaid within a(n) ----- time frame with equal payments.

Blank 1: one-time, one time, installment, single, specific, or onetime Blank 2: specified, specific, set, certain, given, or fixed

A credit file contains your detailed ----- information.

Blank 1: personal, financial, credit, or private

The most important thing you can do to improve your credit score is to pay your bills on -----. This is a one-word answer.

Blank 1: time

The ------ in Lending Act prohibits creditors from giving inaccurate information or denying consumers the right to cancel credit accounts.

Blank 1: truth

How is collateral used in evaluating loans?

Collateral is used when you apply and sign for a loan, pledging some kind of property to secure the loan.

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. Reason: Correct. Economists agree that consumer credit is a major force in the U.S. economy.

Which of the following is the main advantage of credit?

Credit allows you to enjoy goods and services now and pay later.

Which of the following statements is true?

Credit is an arrangement to receive cash or goods or service now and pay for them later.

Which of the following are the names of credit bureaus?

Equifax TransUnion Experian

The law that protects consumers by setting standards for correcting billing mistakes and allowing customers to avoid paying for defective merchandise is called the ______.

Fair Credit Billing Act

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: The three names of the major credit reporting agencies are Trans Union, Equifax, and Experiment.

False

True or false: The Fair Credit Reporting Act was enacted in 1960.

False Reason: Correct. Its establishment was in 1970-71.

What would happen if a Credit Bureau verifies inaccurate information?

If the Credit Bureau is wrong about information, the consumer can sue for damages.

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.

What does the Fair Credit Billing Act (FCBA) do?

It protects consumers with billing mistakes and provides assistance in avoiding payment for defective merchandise.

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.

If you purchase a new but defective item that the business will not accept as a return, what does the FCBA require?

The credit card company will allow you to withhold payment on such an item because it is defective.

What are the advantages to overspending with credit?

There are no real advantages to overspending on credit.

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: It is important to evaluate the reason for taking a home equity loan.

True

True or false: People who have a strong willingness and ability to repay debts generally have the highest credit ratings.

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

When reporting suspicious emails or calls from third parties (found in the discussion of what's phishing?):

When reporting suspicious emails or calls from third parties (found in the discussion of what's phishing?):

What is the proper way to correct a billing error?

Write a clear letter reporting the error to the credit agency.

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.

A borrower's assets in excess of liabilities is called ______.

capital

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

Consumers that pay off the balance each month are called _____.

convenience users

Credit card fraud affects:

credit card holders.

Which of the following is something that the Equal Credit Opportunity Act designed to do?

ensure that persons are not discriminated against because of their race ensure that persons are not discriminated against because of their sex ensure that persons are not discriminated against based upon their age

Select all that apply What are the effects of credit card fraud?

higher prices for consumers higher interest rates for consumers

The definition of open-end credit is:

loans made on a continuous basis and billed periodically for partial payment.

The Fair Credit Billing Act provides that you may withhold payment on damaged or defective goods or poor services you have purchased with a credit card as long as you have:

made a sincere attempt to resolve the problem with the merchant.

What type of credit is a home equity loan?

open-end credit Reason: Correct. Home equity loans are a type of revolving line of credit, which are a type of open-end credit.

Select all that apply What are the three types of closed-end credit?

single lump-sum credit installment cash credit installment sales credit

If you have a complaint about a business while dealing with identity theft issues, you can file a complaint with:

the Federal Trade Commission.

Why are the five Cs used?

to help identify good customers for credit approval

The Fair Credit Billing Act's underlining purpose is:

to protect consumer credit ratings

When creditworthiness is being determined, creditors look for which of the following?

total debt net income employment history

Some credit cards charge no annual fee, but instead charge a _____.

transaction fee

When making online purchases, you should:

use a secure browser, keep a record of the purchase, and review your statement.

Which of the following is part of the billing dispute process?

writing a letter to the creditor

Capacity is the borrower's financial ----- to meet the credit obligations.

Blank 1: ability or capability

One of the 5 Cs of credit is -----. This is a valuable asset that can be taken to satisfy a loan obligation.

Blank 1: collateral

Economists now recognize ------ ------- as a major force in the U.S. economy.

Blank 1: consumer Blank 2: credit

Conditions, one of the five Cs of credit, refers to the general ----- conditions that can affect your ----- to repay a loan.

Blank 1: economic or financial Blank 2: ability or capacity

Credit allows you to buy clothes today and pay for them in the -----

Blank 1: future or later

When someone steals your personal or sensitive information, this is called ---- ----

Blank 1: identity, ID, identification, or committing Blank 2: theft, crime, or crisis

To calculate the debt payments-to-income ratio, total monthly debt payments (excluding home mortgage) is divided by the ---- monthly income of the consumer. This is a one-word answer.

Blank 1: net

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: Credit cards are not particularly common among consumers.

False

True or false: Although the five Cs are important, capacity is the only one that really matters.

False Reason: Correct. All of the five Cs are important.

True or false: When suing a creditor, you can sue for actual damages and $15,000 in punitive damages.

False Reason: Correct. You can only claim $10,000 in punitive damages.

True or false: If you find a problem in your bill, you should notify the credit bureau in writing within 60 days.

False Reason: Correct. You should notify the creditor, not the credit bureau.

What is the procedure under consumer credit laws when denial of credit is discriminatory?

Make the creditor aware of your understanding of the law. File a complaint with the government. Sue the creditor.

Which of the following is NOT true?

Most credit card companies do not offer a grace period

How does the Secret Service fight identity theft?

The Secret Service typically focuses on financial fraud cases with large amounts of money involved.

What does the Consumer Credit Reporting Act state?

The burden of proof for accurate credit information is placed on credit reporting agencies.

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.

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: The grace period is the time allowed to pay the balance on a credit card before interest accrues.

True

True or false: To opt out from prescreened solicitations, you may notify the credit reporting agencies via mail.

True

True or false: The ECOA protects individuals from discrimination in credit transactions on the basis of factors including race, color, age, sex, and marital status.

True Reason: Correct. The ECOA is an antidiscrimination law.

True or false: Using credit to purchase goods and services may allow consumers to be more efficient or more productive.

True Reason: Correct. This question should be thought of as building yourself financially.

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.

A prearranged amount of money that is accessed with special checks is called:

a bank line of credit. a revolving check credit.

When errors are found in your credit report:

a correction can be made. Reason: Correct. When errors are found in your credit report, the credit bureau must check the information and change or remove the incorrect items.

What is a credit bureau?

a reporting agency that collects information on how promptly people and businesses pay their bills

A bank line of credit is also known as ______.

a revolving check credit

An arrangement whereby borrowings are permitted up to a specified limit and for a stated period is known as:

a revolving line of credit.

Select all that apply 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

A home equity loan can be seen as:

borrowing money against the value of your house.

When evaluating the 5 Cs of credit, ______ is determined by a borrower's assets or net worth.

capital

When impostors take your name, Social Security number, credit card number, or some other piece of your personal information for their use, they are:

committing a crime.

Select all that apply Which of the following should you consider when determining whether you can afford a loan?

funds remaining for other expenses your monthly pay your monthly expenses

Select all that apply What are responsible purchases with a home equity loan?

home improvements educational expenses

Closed-end credit is paying back a loan:

in a specified period of time and in payments of specified amounts.

What is the difference between convenience users and borrowers?

payment of the full balance versus carrying over a balance Reason: Correct. A convenience user pays off the full balance every month. A borrower does not. So the difference is the payment of the full balance versus carrying a balance.

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.

Opting out is:

requesting removal of your name from mail and phone lists that solicit for credit offers.

When evaluating a home equity loan, which of following should be examined?

terms and condition changes whether payments are applied to interest only hidden fees

Who can a victim of identity theft call to network with other victims?

the Privacy Rights Clearinghouse

The Act that prohibits creditors from giving inaccurate information or denying consumers the right to cancel credit accounts is:

the Truth in Lending Act.

When referring to credit, character means:

the borrower's attitude toward credit obligations. Reason: Correct. Most credit managers consider character the most important factor in predicting whether you will make timely payments and ultimately repay your loan.

When referring to credit, capacity refers to:

the borrower's financial ability to meet the credit obligation.

Character, capacity, capital, collateral, and conditions are known as _____.

the five Cs of credit

What do conditions mean in reference to credit?

the general economic conditions that can affect a borrower's ability to repay a loan

The difference between a smart card and a regular credit card is:

the metallic chip embedded on the front of the smart card.

Select all that apply The main differences between annual fees and transaction fees are:

the number of charges. the frequency of charges.

Which of the following is an example of using credit to better your life financially?

to attend college

To improve your credit score, it is important to:

understand the computation of outstanding debt. pay your bills on time. avoid applying for new credit cards.

What is typically in a credit file?

whether checks have been returned for insufficient funds employer information former address whether you rent or own your home