Personal Finance Ch 7-9

A ____ company is an organization that makes high-risk consumer loans.

finance

A legal process that allows part of your paycheck to be withheld for payment of a debt is called

garnishment

Simon pays his bills on the due date or within a ten-day grace period. This would probably earn him a(n)

good credit rating

The ____ is a timeframe within which you may pay your current credit balance in full and incur no finance charges.

grace period

Your credit ___ is the complete record of your borrowing and repayment performance

history

Money paid for the use of someone else's money is called

interest

Which of the following transactions would likely be difficult to make without a credit card?

reserving a hotel room

The need for credit arose in the United States with the dawn of the

Industrial Revolution

One difference between a charge card and a credit card is that

the full balance on a charge card must be paid each month.

On a FICO score, new credit is rated based on

the number of recently opened accounts and the number of recent credit inquiries

Which of the following might be included in your credit report?

your marital status, your address, your occupation (all of the above)

When your earnings exceed your expenses, you have the capacity to take on debt.

True

A credit ___ is a written statement of a consumer's credit history.

report

A ____ is someone who promises to pay if the borrower fails to pay.

cosigner

A legal business that makes high-interest loans based on the value of personal possessions is called a

pawnbroker

One way to minimize the cost of credit is to

pay cash for small purchases.

If you go over your credit limit or make your payment late, you will likely be charged a(n)

penalty fee

A scam that uses online pop-up messages or e-mail to deceive you into disclosing personal information is called

phishing

Your credit ____ is a measure of creditworthiness based on an analysis of your credit and financial history.

rating

Both creditors and debtors have responsibilities to each other.

True

Businesses can make credit inquiries on you without your permission, but usually those inquiries do not count toward your credit score.

True

Credit bureaus are permitted to charge a reasonable fee for freezing or unfreezing a consumer's credit reports and files.

True

Credit is the most commonly used method of purchase in the United States.

True

Do not increase spending when your income increases; instead, use the extra income to pay off credit card debt or put it into savings.

True

Early in the history of the United States, credit consisted of a store account with a local retailer, and interest was rarely charged.

True

If an online retailer also has a physical "bricks-and-mortar" store, it is probably safer than a merchant that exists only in cyberspace.

True

If the economy is slowing and unemployment in your area is rising, creditors may be less willing to grant you a loan.

True

If there is a problem with a purchase, credit cardholders can withhold payment until it is resolved.

True

If you fail to make payments as agreed, a creditor can take you to court and win a judgment against you.

True

If you hire a credit guard service company, you will be notified whenever anyone accesses your credit file for any reason.

True

In most credit transactions, the standard practice is to use 360 as the number of days in a year for computing simple interest.

True

Life insurance policies that build cash value can be used to borrow money.

True

Money borrowed against your line of credit is called a cash advance.

True

Most borrowers find that the interest rates for loans go up faster during periods of rising prices than they go down during periods of falling prices.

True

Most credit cards are revolving credit agreements.

True

Payments on a credit account include both principal and interest.

True

Some banks allow minors to establish savings accounts with small balances and waive normal fees charged to other depositors.

True

The Account Detail section of a credit report shows the monthly balances for all of a consumer's credit accounts as well as credit limits on each account.

True

The annual percentage rate, or APR, is the true rate of interest paid over the life of an installment loan.

True

The fee charged by a debt collector is often about half of the amount collected.

True

The two major factors used to evaluate consumers' creditworthiness are credit rating and credit score.

True

The financial ability to repay a loan with present income is known as

capacity

Credit reports are issued by

credit bureaus

A consumer request that requires the credit bureaus to deny all access to a consumer's credit information or files is called a

credit freeze

A ____ is a person or business that loans money to others

creditor

A ____ is a person or company hired by a creditor to collect the overdue balance on an account.

debt collector

A person who borrows money from another is a

debtor

A service available to charge customers whereby purchases are not billed until much later than the standard billing time is called

deferred billing

A bad debt is a credit account that is overdue but probably still collectible.

False

____ credit is the remaining credit available to you on current accounts.

unused

An _____ law is a state law that sets a maximum interest rate that may be charged for consumer loans.

usury

____ is treating people differently based on prejudice rather than individual merit.

Discrimination

The Consumer Financial Protection Bureau was created by the

Dodd-Frank Wall Street Reform and Consumer Protection Act

Any negative information that could harm your ability to get credit remains in your credit report for 10 years.

False

Tammi wants to buy a new stereo system. She finds one for $500 at Stereo City. She withdraws $250 from her account at First National Bank and obtains a loan from her parents for the rest of the amount. Then she purchases the stereo. In this scenario, who is the debtor?

Tammi

Before granting you credit, a creditor will check into your past credit performance.

True

Which of the following is often the first step people take to establish a good credit record?

open a savings account

With ____ credit, a borrower can use credit up to a stated limit.

open-end

The unpaid portion of a loan is called

principal

The ____ is the interest rate that banks offer to their best business customers.

prime rate

An installment contract requires a ____, which is part of the purchase price paid in cash up front.

down payment

The rate is the percentage of ____ you will pay on a loan.

interest

With ____ -rate loans, the interest rate goes up and down with inflation and other economic indicators.

variable

It is illegal to use one credit card to pay another credit card.

False

Once credit is established, most people should plan on having at least eight to ten credit cards at any given time.

False

Secured loans typically have higher interest rates than unsecured loans.

False

Simple interest is interest computed on the amount borrowed (or saved), plus compounding.

False

Storing your credit card information on a merchant's website facilitates the shopping process and generally poses no security risk.

False

The Fair Credit Billing Act prohibits creditors from denying credit to someone based solely on marital status.

False

Today, Americans use credit mainly for emergency spending needs.

False

When a bill is paid within 15 days of its due date, this is considered an automatic grace period.

False

When creditors use the average daily balance method, they impose the finance charge on the entire amount owed from the previous month.

False

When you are denied credit, you can obtain a credit report for $15 if you ask within 30 days of being denied.

False

____ occurs when you purchase something without thinking about it and making a conscious decision.

Impulse buying

You will receive a payback in the form of points that can be redeemed for merchandise if your credit account has a

rewards program

When a credit bureau adds up your credit points, they result in a credit

score

With a _____ loan, the good you purchase with the loan serve as collateral for the money loaned.

secured

When you buy an item that serves as collateral, you are taking out a

secured loan

Credit bureaus gather information from businesses, called _____, that pay a monthly fee to the credit bureau.

subscribers

This law requires lenders to fully inform consumers about all costs of a credit purchase before an agreement is signed.

the Consumer Credit Protection Act

Having a credit card protects you from the risk of identity theft.

False

If a retail store offers its own credit card, it probably will not accept cards issued by major credit card companies such as Visa or Discover.

False

If you do not use your credit card within a 12-month period, you do not have to pay the annual fee.

False

In cases of credit card fraud, both the credit card holder's liability and the merchant's liability are limited to $50.

False

Carrying a credit card is much more dangerous than carrying cash.

False

Collateral refers to financial assets you possess that are worth more than your debts.

False

Consumers do not have the right to opt out of a credit arrangement because of changes in credit policies.

False

Creditors are not required to disclose the amount of finance charges you will pay if you make only the minimum payments on your credit card debt.

False

Finance companies take less risk than banks, so they tend to be more lenient with borrowers who are late making a payment.

False

Which of the following is most likely to be an impulse purchase?

a candy bar

Which of the following is least likely to offer service credit?

a furniture store

When creditors apply the finance charge only to the amount owed after you've paid your bill each month, they are using the

adjusted balance method

Your financial position is based on your

capital

_____ is the value of property you possess after deducting your debts

capital

A responsible attitude toward honoring obligations is called

character

Property pledged to assure repayment of a loan is called

collateral

_____ shopping involves checking several places to be sure you are getting the best price for equal quality.

comparison

Which of the following is NOT an example of a creditors' responsibility to a consumer?

contacting the consumer each month to verify that the bill is correct

The use of someone else's money, borrowed now with the agreement to pay it back later, is called

credit

Secure websites have a small lock icon that means the information you enter will be

encrypted

____ is a code that protects your account name, number, and other information

encryption

A ____ credit rating is earned by a customer who usually pays all bills within the grace period, but occasionally takes longer.

fair

The total dollar amount of all interest and fees you pay for the use of credit is called the

finance charge