PFIN 7 Chapter 6 Using Credit

As a percent of take-home pay, monthly consumer credit payments should not exceed: a. 20%. b. 15%. c. 25%. d. 5%. e. 10%.

a. 20%.

Which of the following is a major reason to use credit? a. Occasionally for convenience b. Regular payment of small cash outlays c. Frequent impulse purchases d. Monthly payment of utility bills e. Weekly purchase of food

a. Occasionally for convenience

Credit should not be consistently used for purchasing nondurable goods. a. True b. False

a. True

Always paying cash helps in establishing a high level of creditworthiness. a. True b. False

b. False

Using credit is the ideal way to meet basic living expenses. a. True b. False

b. False

Which of the following forms of consumer credit is among the cheapest and offers limited tax deductions? a. Overdraft protection lines b. Home equity credit lines c. The Wage Earner Plan d. Credit cards e. Unsecured personal credit

b. Home equity credit lines

Which of the following will lead to a poor credit rating? a. Making payments ahead of schedule b. Opening checking and savings accounts c. Applying for a long-term loan and occasionally being late with a payment d. Opening and using a charge account e. Discussing with the lender if you foresee difficulty in making a payment

c. Applying for a long-term loan and occasionally being late with a payment

Which of the following is the correct formula for calculating the debt safety ratio? a. Monthly Take-Home Pay ÷ Total Monthly Consumer Credit Payments b. Gross Monthly Pay ÷ Total Monthly Consumer Credit Payments c. Total Monthly Consumer Credit Payments ÷ Monthly Take-Home Pay d. Gross Monthly Pay ÷ Monthly Take-Home Pay e. Total Monthly Consumer Credit Payments ÷ Gross Monthly Pay

c. Total Monthly Consumer Credit Payments ÷ Monthly Take-Home Pay

To establish credit, you should first: a. arrange for a small loan. b. use credit extensively. c. pay cash for all purchases. d. arrange for a large loan from close relatives. e. open savings and checking accounts.

e. open savings and checking accounts.

With a bank credit card, you can often avoid interest charges if: a. at least half the account balance is paid every month. b. the minimum payment is made every month. c. the account balance is below the credit limit. d. the account is a revolving credit account. e. the account balance is paid in full every month.

e. the account balance is paid in full every month.