Personal Finance Chapter 5

Based upon the definition of consumer credit, which of the following is not credit used for personal needs?

Home mortgage

Under the Consumer Credit Reporting Reform Act, what would happen if a Credit Bureau verifies inaccurate information?

If the Credit Bureau is wrong about information, the consumer can sue for actual, possibly punitive damages.

________ interest (I) is calculated as follows: Principal * Rate of Interest * Time

Simple

When referring to credit, character means:

The borrower's attitude toward credit obligations

When creditworthiness is being determined, creditors look for which three of the following?

Total debt Net income Employment history

True or false: Credit is defined as an arrangement to receive cash, goods or services now with payment in the future.

True

True or false: The trade off of using credit is it decreases the availability of money to spend in the future.

True

Four billing errors:

When the business mails your statement to an incorrect home address A mathematical error Being forced to pay for defective goods Goods or services purchased without your authorization

Capacity is the borrower's financial ____ to meet the credit obligations.

ability

A periodic charge for the use of credit is known as ____.

interest

Long-term financing is more costly than short-term financing because of higher ____ rates.

interest

Which three are examples of open-end credit:

using a bank credit-card department store credit card overdraft protection

The Fair Credit Reporting Act of 1971

regulates the use of credit reports, requires deletion of obsolete information, allows access of their files to consumers

If you cannot make a payment on a debt when due, contact the ____ at once to work out a modified payment plan.

creditor

What are the five Cs used by lending institutions?

Collateral Capacity Character Conditions Capital

How is collateral used in evaluating loans?

Collateral is used when you apply and sign for a loan, pledging some kind of property to secure the loan.

The three-step process to follow in cases of identity theft is to contract the three credit bureaus, contact creditors to see if accounts have been tampered with, and, finally, file a _____________.

police report

How does the Fair Credit Billing Act protect consumer credit rating?

By allowing consumers to challenge charges that are false and avoid having delinquent charges added to their credit history

What is an irresponsible use of credit?

Purchasing goods (you might not need) until your credit limit is reached

A line of ____ is the maximum amount of funds lent to a consumer.

credit

When a mistake is made and a consumer complains, the Fair Credit Billing Act requires that the creditor must do which 2:

correct the mistake in a timely fashion acknowledge the complaint within 30 days