PFS Chapter 5

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

1

Information about a personal bankruptcy may be reported in your credit file for

10 years

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

20%

A typical grace period offered by many credit card issuers is

20-25 days.

A credit card holder who pays off his balances in full each month is known as

A convenience user.

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

A debit card

Which of the following is NOT associated with credit cards?

A debit to your checking account

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

A department store credit card

When misused, credit can result in

A less satisfying life. Bankruptcy. Loss of creditworthiness. Default. (All the choices are correct.)

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

A mortgage loan.

A prearranged loan for a specified amount that a consumer can use by writing a special check is known as

A revolving check credit.

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

Adding up basic monthly expenses and subtracting this total from take-home pay, plus figuring out what to give up to make the monthly loan payment.

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

An installment cash credit.

Installment credit, in which the debt is repaid in equal installments over a specified period of time, exploded on the American scene with the advent of the

Automobile

Which of the following can result from a failure to repay a loan?

Bankruptcy. Damage to family relationships. Loss of income or valuable property. Loss of a good reputation. (All of the above may result from the failure to repay a loan.)

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

Capacity

The question "What are your assets and net worth?" relates to

Capital

The question "Will you repay the loan?" relates to

Character

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

Closed-end credit.

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

Collateral

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

Could I use the credit I need for this purchase in some better way? Could I postpone the purchase? Do I have the cash I need for the down payment? Does the purchase fit my budget? (All of these questions should be considered.)

Consumer credit

Dates back to colonial times.

Home equity loans

Have interest that is tax-deductible.

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

House.

Credit reports can be obtained for all of the following reasons except

Inquiry by a neighbor

The periodic charge for the use of credit is called

Interest.

Home equity loans should be used for

Major expenses such as home improvements or education.

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

Mortgage balance.

Which of the following is often considered to offer the least expensive loans (loans with low interest)?

Parents or family members.

Which of the following is a valid reason for using credit?

Paying for a medical emergency Purchasing an item that costs less now than it will later Borrowing for a college education Purchasing a car so a homemaker can return to work (All of these are valid reasons for borrowing)

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

Paying for everyday living expenses

A cash advance

Requires you to pay interest every day until you repay the cash advance.

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

Sex. Age. Nationality. Race. (All of these are prohibited.)

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

Single lump-sum credit.

A line of credit is

The maximum dollar amount of credit the lender has made available to a borrower.

Bankruptcy courts treat gift cards

The same way they handle unsecured debt.

Perhaps the greatest disadvantage of using credit is

The temptation to overspend.

Many people expect

Their incomes to increase to make it easier to make payments on past credit purchases.

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

VantageScore

Before buying goods and services on credit, a consumer should consider all of the following except

Whether the good or service will be worth more because it was purchased with credit instead of cash.

(Which of the following is NOT correct?) Using credit cards typically provides...

a "float" of up to 10 days.

(Which of the following is NOT correct?) Using credit can increase...

the amount of money that will be available to spend in the future.

Which of the following is the only online source authorized to provide you with a free copy of your credit report annually?

www.annualcreditreport.com