Consumer Economics Chapter 11 Test Review

A common grace period might be...

20 to 25 days.

A final payment that is much larger than the other installments

Balloon payment

The three C's of credit include all of the following EXCEPT...

Credibility.

Once you complete a loan application, you'll have to wait while the lender runs a ___________ check.

Credit

The supplying of money, goods, or services at present in exchange for the promise of future payment

Credit

Guidance provided by trained people who help consumers learn to live within their means

Credit counseling

The maximum amount of credit that the creditor will extend to the borrower is called the...

Credit limit.

An evaluation of a consumer's credit history

Credit rating

A record of a particular consumer's transactions and payment patterns

Credit report

A numerical rating that represents a person's level of credit worthiness

Credit score

Defaulting on a loan is the most negative way you can affect your credit score.

False

It is a good idea to check your credit report once a month.

False

Lenders may be concerned if they think you are paying too little for housing.

False

Most private label cards can be used not only to make purchases but also to obtain cash advances from automatic teller machines.

False

Private label cards generally do not charge interest.

False

Purchasing credit life insurance is required for most loans.

False

Secured credit is generally more difficult for customers to obtain than unsecured credit.

False

The borrower has a security interest in property pledged as assurance that a loan will be repaid.

False

Typically, a person who borrows from a consumer finance company is less of a credit risk than a person who borrows from a bank.

False

Using credit may reduce the likelihood of making impulse decisions.

False

The total cost of using credit, including interest and any fees

Finance charge

Court-ordered withholding of a specified sum from a person's wages to pay a debt

Garnishment

By paying your credit card balance in full during the ______________, you can avoid paying finance charges. (two words)

Grace period

A home loan is for the purchase of a home, and the ____________ serves as security for the loan.

Home

When you complete a credit application to assess whether you are a good credit risk, you are likely to be asked...

How long you've lived at your present address.

A home ______________ loan helps the homeowner make needed repairs or improvements to a home.

Improvement

The Credit CARD Act of 2009 puts limits on credit card ___________ _____________ and ________________ ______________.

Rate increases; excessive fees

With a(n) _______________ credit card, the cardholder may pay for all charges in full, make only a minimum payment, or pay any amount in between.

Revolving

The right to cancel a loan within three business days

Right of rescission

Credit that is backed by a pledge of property

Secured credit

*Credit bureaus and reporting agencies may sell your credit report to banks that are evaluating your application for a loan.

True

*Lenders predict future payment of debt based on the past payment history of the borrower.

True

A borrower must repay the original amount borrowed, plus interest paid for the use of the creditor's money.

True

A borrower whose loan includes a balloon payment might have difficulty paying off the debt.

True

A credit card can give you a sense of security, because you can make purchases without carrying large amounts of cash.

True

A secured credit card is one that requires you to keep a savings account as security.

True

Credit bureaus and reporting agencies do not judge whether consumers deserve credit.

True

If you are having problems making payments, contact your creditors immediately to make different payment arrangements.

True

If you fail to pay for items purchased on credit, they can be taken back by the merchant.

True

In the long run, credit reduces purchasing power.

True

Payday loans may include a fee based on the amount loaned.

True

The Equal Credit Opportunity Act is a federal law ensuring that all consumers are given an equal chance to obtain credit.

True

To offset credit costs, many businesses increase their prices.

True

You should shred your credit-card documents before discarding them.

True

The law the required creditors to inform consumers about credit terms and costs is the __________________. (four words)

Truth in Lending Act

With a(n) ______________ rate, the annual percentage rate can go up or down depending on economic factors.

Variable

If you find an error on a billing statement, write a letter to the creditor and be sure it reaches the creditor within ____________ days of receiving the first bill containing the error.

60

If a delinquent account is turned over to a collection agency, the borrower's credit rating will be lowered.

True

*Collateral reduces the lender's risk.

True

*The cardholder agreement may specify fees for late payments, cash advances, and exceeding your credit limit.

True

The APR of revolving credit cards can vary widely.

True

The cost of borrowing money against a credit card is usually higher than the cost of borrowing from a bank.

True

A set portion of a loan amount that a borrower must pay at regularly scheduled intervals

Installment

If you think you'll carry over a balance, look for a low ________________. (two words)

Interest rate

The Truth in Lending Act requires that finance companies offering payday loans must disclose the cost of the loan in terms of the actual __________.

APR

The annual rate of interest that is charged for using credit is called the...

APR.

An agreement that gives the seller the right to declare the whole balance due if the buyer misses even one installment payment

Acceleration clause

An agreement that allows additional purchases to be added to an installment contract, with earlier purchases used as security for later ones

Add-on clause

If you intend to pay the balance in full every month, look for a card with no ________________. (two words)

Annual fee

You can establish a good credit history by doing any of the following EXCEPT...

Applying for a small line of credit at a local store and making expensive purchases in the first month.

Trading a TV for a sum far below its value to a(n) _________________, who sells it back to you for a much higher price, is a costly way to get a loan.

Pawnbroker

Legal relief from repaying certain debts

Bankruptcy

Finance companies _________________ the money they lend because they do not have depositors to supply money.

Borrow

A claim upon property to satisfy a debt

Lien

A consumer who wants an open-end, unsecured loan with a preset limit that can be used when needed can apply for a personal _________________. (three words)

Line of credit

An unlicensed lender that operates illegally and charges excessive interest

Loan shark

Using your credit card wisely includes all of the following EXCEPT...

Making only the minimum payment each month.

Items owned, or assets

Capital

A way to borrow money against a credit card

Cash advance

A type of bankruptcy that requires payment of debts over time

Chapter 13

With a(n) _____________ card, all charges must be paid in full each month to avoid finance charges.

Charge

One of a debtor's financial responsibilities even after bankruptcy

Child support

A one-time extension of credit for a specific amount and time period

Closed-end credit

Property that is pledged to guarantee repayment of a loan

Collateral

A business that collects unpaid debts for creditors

Collection agency

Credit that is used for business purposes

Commercial credit

A person with an established credit history who signs a credit contract along with a borrower

Cosigner

Where you borrow and the type of loan you get affects the overall ____________ of credit.

Cost

A line of credit that can be used repeatedly

Open-end credit

Finance companies usually charge less for their loans than banks do.

False

Getting a refund on returned items is usually more difficult if they were charged.

False

Failure to fulfill the obligations of a loan

Default

Overdue

Delinquent

A portion of the purchase price paid by cash or check at the time of purchase, reducing the amount borrowed

Down payment

The Equal Credit Opportunity Act protects against discrimination for all of the following reasons EXCEPT...

Employment income.

A consumer's right to access his or her credit file is assured by the...

Fair Credit Reporting Act.

*Credit used for personal purposes is called commercial credit.

False

A typical credit card provides closed-end credit.

False

An employer or a prospective employer can check your credit report without your consent.

False

Borrowing money from a life insurance policy has several advantages and no real drawbacks.

False

Capital is a person's earning power and ability to pay debts from regular income.

False

Credit reporting agencies offer a service that enables consumers to view anyone's credit score for a fee.

False

A small, short-term, high-interest loan

Payday loan

Dates on which installments are due and the amount of each installment

Payment schedule

The original amount borrowed

Principal

The taking away of property when a borrower fails to make loan or credit payments

Repossession

If you get a private loan from a family member, you should ask for a(n) ________________ for each payment you make. (two words)

Signed receipt

A card that has a computer chip that stores information for online shopping is a(n)...

Smart card.

The _________________ lists all transactions that have been processed since the last statement date.

Statement

A credit-card company might try to attract new business with a(n) ____________ rate-a low introductory rate that is in effect for only a limited time.

Teaser