Chapter 6 - Managing Your Personal Finances
Sheldon has a home valued at $108,000 and an outstanding mortgage of $70,000. If his lender is willing to provide a home equity loan of up to 80% of market value, how much could Sheldon borrow using a home equity loan?
(108000*80%) - 70000 = 16400
Clare's annual gross salary is $36,000, and her after-tax income is $28,800. What is Clare's maximum recommended monthly consumer credit payment?
(28800/12) * 20% = 480
Russ and Lois have a home valued at $96,000 and an outstanding mortgage of $60,000. If their lender is willing to provide a home equity loan of up to 75% of market value, how much could they borrow using a home equity loan?
(96000*75%) - 60000 = 12000
If your monthly before-tax income is $2,000 and your monthly take-home pay is $1,500, your maximum monthly consumer credit payments should not exceed:
1,500 * 20% = 300
As a percent of take-home pay, monthly consumer credit payments should not exceed:
20%
If your total monthly consumer credit payments are $1000, and your monthly take-home pay is $4000 your debt safety ratio
4000/1000 = 25%
If a borrower has a high FICO score, then there is
A high chance that a lower interest rate will be charge for their loan (higher FICO score the better)
Which card is issued as a form of credit by department stores and oil companies
A retail charge card
______ are the credit cards issued in conjunction with a sponsoring group- most commonly some type if charitable, political, or professional organization
Affinity cards
straight bankruptcy
Allows a debtor to retain some other personal assets as per federal regulations
FICO credit scoring system assigns points according to
Amounts owned
Mike has a MasterCard with an annual fee of $25, 18% interest, and a $1,000 credit limit. He always pays the total outstanding balance monthly. His most recent monthly statement lists last month's payment, new charges this month totaling $1,500, and a $30 fee. That fee is most likely the result of
An over the limit fee
Actions that lead to a poor credit rating
Applying for a long-term loan and occasionally being late with a payment
Most expensive method for determining finance charges on revolving credit
Average daily balance (ADB) including new purchases
_____ is a reason that people use credjt
Being able to meet a financial emergency
Which of the following statements about the cash advances that the holder of a credit card can obtain from participating bank is true
Cash advances obtained from the teller window at a bank are limited by unused credit in the borrower's account
straight bankruptcy is under
Chapter 7 code
The 5 Cs of credit are:
Character, Capacity, Collateral, Capital, Condition
A proper use of open account credit would be to buy a
Computer
The best way to build a strong credit card history
Consistently make payments on time
A _____ is a type of reporting agency that collects and sells credit information about individual borrowers?
Credit bureau
James finds it difficult to manage credit but wants the convenience of using a credit card. He wants to get a card that will provide direct access to his checking account. James should get a:
Debit card
Which of the following cards provides direct access to your checking account
Debit card
a payment made using ___ is equivalent to paying by cash
Debit card
A big disadvantage of a debit card is that
Doesn't provide a line of credit
Chapter 7 of the bankruptcy code
Eliminates most of the financial obligations if the borrower
Which of the following is a result of excess unused credit capacity
FICO score reduced
A FICO score above 500 is considered exceptional True/False
False
A credit card user's credit rating will be hampered if he or she pays only the minimum monthly payment on a credit card True/False
False
A retail charge card can be accessed by writing checks against demand deposit True/False
False
All credit card have annual fees True/False
False
Always paying cash helps in establishing a high level of creditworthiness True/False
False
Credit card with very low minimum payment requirements are in the consumers' best interest True/False
False
Credit reports on individual borrowers are provided by credit card issuers True/false
False
It is necessary to give your SSN for identification when using a credit card True/False
False
Most family have only one source for consumer credit True/False
False
Overspending will help you manage your budget effectively True/False
False
Retail charge cards are cheaper than credit cards provided by financial institutions True/False
False
The intent of the Wage Earner Plan is to eliminate all of a debtor's obligation True/False
False
They key to creditworthiness is to maintain your debt safety ratio at 50% or above True/False
False
Using credit is the ideal way to meet basic living expenses. True/False
False
Your credit bureau file often includes information about your political and religious affiliations True/False
False
Most lenders immediately will ___ the first time that you have difficulty meeting your loan payments
Grant an extension
High FICO score mean
Higher chance of their loan getting approved
Forms of credit is among the cheapest and offers limited tax deductions
Home equity credit lines
Who make the decision whether or not to grant you a credit card
Individual creditors
An improper use of credit
Meeting a financial emergency
Nancy's take-home income is $3,000 per month, and she currently has a $1500 monthly consumer debt. Which of the following statements applies to Nancy's ability to handle additional debt?
Nancy cannot take on additional consumer debt because her debt safety ratio is higher than the lender's guidelines of 20% (1500/3000=0.50 aka 50% > 20%)
Janey makes frequent small purchases and pays off the total outstanding balance on her credit card every month. Which of the following features is most attractive to her when searching for a credit card provider?
No annual fee (frequent use, paying off outstanding balance)
William uses his bank credit card frequently; however, he always pays off the total balance on the card each month. What should William look for in a credit card given the way he uses a credit card?
No annual fee and long grace period (frequently use, pay off outstanding)
Convenience check
Obtain a cash advance from the bank that offers a credit card
A major reason to use credit
Occasionally for convenience
Any credit card purchase will effectively be an interest-free loan if you gave a zero balance when the grace period begins and you
Pay off the entire payment on/before the due date
It is good to use credit for
Paying rent for your home
If the information in an individual borrower's credit report contains an error, they entitled to
Request a correction
A frequent flyer card can be aptly classified as an
Reward card
______ are targeted at people with bad credit histories
Secured credit cards
If you are expecting difficulties in making your payments it is recommended that you:
Talk to the creditors
_____ involves some type of debt restructuring by establishing a debt repayment schedule
The Wage Earner Plan (chapter 13)
With a credit card you can often avoid interest charges if
The account balance is paid in full every month
What does the lender look at before granting credit to an applicant
The applicant's age
Which of the following statement is true about credit scoring systems
The credit scoring systems is based on extensive statistical studies
Debt Safety Ratio Formula
Total Monthly Consumer Credit Payments/ Monthly Take-Home Pay
A Person whole does not pay her credit balance in full every month should look for a credit card with a low interest rate True/False
True
A chapter 7 bankruptcy filing would result in the discharge of most of your debts True/False
True
A credit card application requests information that is routinely used to predict creditworthiness True/False
True
An individual can be overusing credit even if they can afford to make a minimum monthly payment on time True/ False
True
An unsecured personal credit line is a form of revolving credit True/False
True
Arranging for and fully repaying a small loan helps improve creditworthiness True/False
True
Cardholders who fail to make the minimum monthly payment on their credit card account are considered to be in default on their account True/False
True
Credit card issuers must disclose to credit applicants the annual percentage rate (APR) that they charge True/False
True
Credit score systems are often used by lenders to determine applicants' creditworthiness True/False
True
Credit should not be consistently used for purchasing nondurable goods True/False
True
Debit cards work like writing a check True/False
True
Families that have a steady source of income and a reasonable chance to repay debts would choose chapter 13 rather than chapter 7 of the U.S Bankruptcy Code True/False
True
For a fee, local credit bureaus can provide credit information to members about prospective borrowers in their community. True/False
True
If you initiated the phone call, it's okay to give your credit card information when ordering/ purchase from MAJOR catalog houses, airlines, hotels True/False
True
Lenders use the guideline that a borrower's monthly repayment burden should not be more than 20% of the borrower's take-home pay True/False
True
Paying a loan on schedule is one way to build a good credit history True/False
True
The majority of persons filing for bankruptcy choose chapter 7 of the U.S Bankruptcy Code True/False
True
The most common method used by lenders to apply finance charges on credit cards is the average daily balance (ADB) method, including new purchase True/false
True
The purpose of a credit investigation is to evaluate the kind of risk you pose to the lender True/False
True
You should not give your credit card account number over the phone to people or organizations who call you True/False
True
You should review your credit bureau file every year True/False
True
When canceling a credit card, you should cut up the card and _____ that you are canceling your account
inform the issuer in writing
To establish credit, you should first
open savings and checking accounts
Which of the following is usually excluded from a monthly credit card statement
the type of goods purchased
Retail charge cards are advantageous to merchants because
they help build consumer loyalty.
