Chapter 5: Consumer Credit: Advantages, Disadvantages, Sources, and Costs
If you are a cosigner for a loan and the debt is not repaid, then that fact will appear on your credit report.
true
If you purchase something with a credit card, the finance charges you pay on an item could end up being more than the item is worth.
true
The question "what are your assets and net worth?" relates to
Capital
Which of the following electronically subtracts money from your savings or checking account to pay for goods and services?
Debit card
When evaluating your credit application, a lender may NOT
Deny you if you receive public assistance
Which of the following is an example of open-end credit?
Department store credit card
Which of the following is NOT associated with credit cards?
Down payment on a home
Which of the following is NOT a credit bureau?
FICO
A credit card holder who pays the full balance during the grace period each month is actually getting a free loan from the credit card company.
true
A credit file can include your spouse's name and Social Security number.
true
According to the Fair Credit Billing Act from 1975, a consumer may tell his credit card company to stop payment for a defective good if he made a sincere attempt to resolve the problem with the store.
true
Closed-end credit is used for a specific purpose and involves a specific amount.
true
Consumer credit dates back to colonial times when it was extensively used by farmers.
true
The periodic charge for the use of credit is
Interest
Home equity loans should be used for
Major expenses such as home improvements or education
A loan that must be repaid in total on a specified day, usually within 30 to 90 days is
Single lump-sum credit
Bankruptcy courts treat gift cards
The same way they handle unsecured debt
Consumer credit allows businesses to be more efficient or more productive.
false
Consumer credit refers to the use of debit cards for personal needs.
false
During the grace period, finance charges are assessed at only half the normal rate.
false
Experts suggest that you spend more than 20 percent of your after-tax (net) income on consumer credit payments.
false
FICO is a better score to use than VantageScore for consumers with limited credit histories.
false
In the five Cs of credit, capacity refers to the borrower's trustworthiness and stability.
false
In the five Cs of credit, capital refers to the borrower's ability to pay additional debts.
false
In the five Cs of credit, conditions refer to what will happen if the borrower does not repay the loan.
false
The most expensive loans are often provided by parents or other family members.
false
You have a legal right to sue a credit bureau if you observe an error in your file.
false
Credit can indicate stability since lenders consider you a good risk.
true
Economists recognize consumer credit as a major force in the American economy.
true
FICO and VantageScore are two methods used to judge creditworthiness.
true
Which is often considered to offer the least expensive loans?
Parents or family members
The use of property or savings to secure a loan relates to
Collateral
According to the Fair Credit Billing Act from 1975, a creditor must adjust the disputed amount in your account or tell you why the bill is correct within 30 days.
false
Although credit allows immediate satisfaction of needs and desires, a greater advantage is that it increases total purchasing power.
false
Interest paid on a credit card is a tax-deductible.
false
The Annual Percentage Rate is lower than the stated rate for loans that are repaid in monthly payments.
false
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made it easier for consumers to file Chapter 7 bankruptcy.
false
The Equal Credit Opportunity Act requires that a lender not turn you down for credit based on your age as long as you are old enough to sign a legal contract, which is usually allowed at age 16.
false
The first sign of stolen identity might be that you get bills for a credit card account that you never opened.
true
The least expensive loans are often provided by parents or other family members.
true
The longer the term for a loan at a given interest rate, the higher the overall interest charges.
true
When used effectively, credit can help a consumer have more and enjoy more.
true
You should keep a record of your credit card number separate form your card.
true
A line of credit is
The maximum dollar amount of credit the lender has made available
Closed-end credit consists of loans made on a continuous basis with periodic bills for at least partial payment.
false
Consumer credit
Dates back to colonial times.
If you have reached the upper limit of debt obligations, your debt-to-equity is about
1
A typical grace period for many credit card issuers is
20 - 25 days
Experts suggest that the debt payments-to-income ratio should be a maximum of
20 percent
FICO socres generally range from
350 to 850
What step can you take if your credit application is denied?
Ask why you were denied credit
Installment credit exploded on the American scene with the advent of the
Automobile
Which of the following is NOT correct?
Credit cards typically offer a "float" of up to 10 days; Credit can increase the amount of money that will be available to spend in the future.
A credit report includes
Credit history
Home equity loans
Have interest that is tax-deductible
If you miss payments on a home equity loan, you can lose your
House
Which of the following is an example of closed-end credit?
Mortgage
When calculating the debt-to-equity ration, the following is NOT included:
Mortgage balance
Which of the following is a valid reason for borrowing?
Purchasing a new dishwasher, Borrowing for a college education, Purchasing a home, and Paying for a medical emergency
The Equal Credit Opportunity Act (ECOA) prohibits a lender form discriminating based on
Race, Nationality, Age, and Sex
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 except:
Whether the good or service will be worth more because they were purchased with credit instead of cash
A bankruptcy remains on a credit file for no more than 5 years.
false
A consumer applies for open-end credit to make a single purchase, such as a large appliance.
false
A disadvantage of using credit is its use when making a hotel reservation.
false
A secured credit card is most appropriate for someone with a strong credit background.
false
A trade off of credit is that it increases the amount of money that will available to spend in the future.
false
According to law, a creditor may threaten you credit rating while you are negotiating a billing dispute.
false
Many think that perhaps the greatest disadvantage of using credit is
The temptation to overspend.
If you are denied credit, you can contact the credit bureau and ask for a copy of your credit report. The bureau cannot charge a fee for this service as long as you ask to see your files within
60 days
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:
A and B are correct. ( Adding up basic monthly expenses then subtracting this total form take-home pay, Multiplying your take-home pay by 50 percent and subtracting your current loan payments.)
A cash advance
Accrues interest charges beginning the day the cash advance is made
Which of the following is NOT a valid credit application question?
All of the above are valid credit application questions. (How much of a loan are you requesting?, What is the account number for your checking account?, What is the name of the nearest relative not living with you?, and How many dependents do you have?)
Which of the following questions is NOT needed before deciding how and when to make a major purchase?
All of the above are valid questions to ask. (Do I have the cash I need for the down payment?, Does the purchase fit my budget?, Could I postpone the purchase?, and Could I use the credit I need for this purchase in some better way?)
Which of the following expressions is correct?
As the consumer goes, so goes the U.S. economy.
A credit cardholder who pays off his balances in full each month is known as
Convenience user
When used effectively, credit can result in
Improved lifestyle
A direct loan for personal purposes, home improvements or vacation expenses is called
Installment cash credit
Which of the following is NOT a valid reason for borrowing?
Paying for everyday living expenses
Credit bureaus get their information from all of the following except:
References
A prearranged loan up to a specified amount that a consumer can access by writing a special check is known as
Revolving check credit
Many people expect
Their incomes to increase to make it easier to make payments
Which of the following is the only online source authorized to provide a free credit report each year at your request?
www.annualcreditreport.com
Failure to repay a loan may lead to all except:
All of the answers may be a result of the failure to repay a loan. (Bankruptcy, Loss of income, Loss of a good reputation, and Damage to family relationships)
A loan officer is examining whether or not he/she will offer you a loan today. Specifically, he/she is examining your income and debts. Which of the five Cs is the loan officer reviewing?
Capacity
The question "will you repay the loan?" relates to
Character
Molly purchased a $1,500 HDTV from Best Appliances. She will make 12 equal payments over the next year to pay for it. She is using
Closed-end credit
The add-on interest calculation uses the formula: Interest = Principal (Rate of interest Time).
false
The amount of interest paid is independent of the length of the loan.
false
The debt-to-equity ratio is calculated by dividing your total liabilities, including mortgage, by net worth.
false
The easiest loans to obtain are also the least expensive.
false
The expected rate of inflation should not be considered when determining the amount of interest a creditor should charge.
false
The higher your FICO score, the more risk you pose to creditors.
false
The longer it takes for you to pay off a bill, the less interest you pay.
false
In the five Cs of credit, character refers to the borrower's trustworthiness and stability.
true
Installment sales credit is a loan that allows a consumer to purchase high-priced items.
true
Most information in your credit file may be reported for only 7 years.
true
Open-end credit consists of loans made on a continuous basis with periodic bills for at least partial payment.
true
The Fair Credit Reporting Act, enacted in 1971, places limits on who can obtain your credit report.
true
The Truth in Lending Act requires that creditors explain how they calculate the finance charge.
true
