FIN210 Chapter 6 SmartBook

True or false: An individual should get intimidated by emails that warn of dire consequences for not following the sender's instructions.

False

Credit card fraud affects:

credit card holders.

An example of open-end credit is:

credit cards.

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.

Why should you care how to use credit?

If you misuse credit, you will pay for it with future income, and it could take many years to pay off the debt.

What type of applications does the ECOA cover?

The ECOA covers applications for mortgages and home improvement loans.

What are the advantages to overspending with credit?

There are no real advantages to overspending on credit.

True or false: Credit cards can be convenient since you need a credit card to make a hotel reservation.

True

What is a credit bureau?

a reporting agency that collects information on how promptly people and businesses pay their bills

Which of the following characteristics cannot be used in your FICO score?

age

How often should you review your credit report?

annually

Typically, qualified cosigners:

are able to pay loan payments

When cosigners sign their loans, they:

are stating that they are able to pay for the loan if required.

A borrower's assets in excess of liabilities is called ______.

capital

When evaluating the 5 Cs of credit, ______ is determined by a borrower's assets or net worth.

capital

One of the 5 Cs of credit is [_____] . This is a valuable asset that can be taken to satisfy a loan obligation.

collateral

Credit allows you to buy clothes today and pay for them in the [_______]

future; later

The higher the FICO score, the [____] risk you pose to creditors.

less

The definition of open-end credit is:

loans made on a continuous basis and billed periodically for partial payment

Convenience users: - pay off the credit balance each month in full. - pay off portions of their credit balance. - use credit cards because of the convenience. - use credit often.

pay off the credit balance each month in full.

John has discovered an error on his credit report. He has contacted the credit bureau. He should:

provide pertinent information to identify the error.

If bankruptcy is filed by the consumer, this:

remains in the credit report for up to 10 years.

When reporting suspicious emails or calls from third parties (found in the discussion of what's phishing?):

report this to the Federal Trade Commission.

Opting out is:

requesting removal of your name from mail and phone lists that solicit for credit offers.

Character, capacity, capital, collateral, and conditions are known as ______.

the five Cs of credit

What do conditions mean in reference to credit?

the general economic conditions that can affect a borrower's ability to repay a loan

The bank will not loan as much money when:

the individual is a risk to the bank.

If the primary borrower misses a payment:

the lender has the right to collect the entire debt immediately from the cosigner if a payment is missed.

Because of the ECOA, creditors may not use any appraisal of the value of your property that considers:

the race of the people in your neighborhood.

The most important thing you can do to improve your credit score is to pay your bills on [_____] . This is a one-word answer.

time

You can get a copy of your credit report free within [____] days of your request, in case you are denied credit based on the information in the report.

60 or sixty

If you apply for a charge account, the creditor will check your ______.

credit score

Select all that apply What are the effects of credit card fraud? - higher prices for consumers - higher interest rates for consumers - higher protection for consumers - higher convenience for consumers

- higher prices for consumers - higher interest rates for consumers

If an unauthorized person(s) accesses your credit report, they could:

- receive jail time. - pay a fine.

Select all that apply Which of the following should you consider when determining whether you can afford a loan? - how badly you want the item - your monthly pay - funds remaining for other expenses - your monthly expenses

- your monthly pay - funds remaining for other expenses - your monthly expenses

True or false: The lender can sue and collect the total amount from the cosigner of the loan.

True

Even though the ECOA dictates that people on public assistance may not be denied credit for that reason, they are often denied because:

certain information related to this income could impact creditworthiness.

To calculate the debt payments-to-income ratio, total monthly debt payments (excluding home mortgage) is divided by the [_____] monthly income of the consumer. This is a one-word answer.

net

When referring to credit, capacity refers to:

the borrower's financial ability to meet the credit obligation.

Select all that apply Based on the data from the credit report, the two most important items when determining your FICO score are: - length of credit history. - types of credit used. - payment history. - new credit. - amounts owed.

- payment history. - amounts owed.

Select all that apply What types of services are provided by credit card companies? - unchanged interest rates - right to buy on approval - free money when traveling - the right to order by phone - advance notice of sales

- right to buy on approval - the right to order by phone - advance notice of sales

The maximum debt payment-to-income ratio that is acceptable is around [_____]%. This is found in the discussion of debt payments-to-income ratio.

20 or twenty

Interest on interest is an example of:

the compounding effect of the cost of credit.

What is a typical grace period for retailers?

21 to 30 days

What do the five Cs mean?

The five Cs are five separate evaluations that a creditor will use to determine a person's creditworthiness.

When referring to credit, character means:

the borrower's attitude toward credit obligations.

True or false: Throwing away all credit card documents is a way to prevent fraud.

False

One convenient aspect of using credit is that multiple charges can be accumulated and paid in one monthly [_____]

payment; bill; check; sum

A credit file contains your detailed [___] information.

personal

Which of the following statements is true? - Credit involves paying now for future satisfaction. - Credit used by a business is called consumer credit. - Consumer credit refers to the use of credit for buying a house. - Credit is an arrangement to receive cash or goods or service now and pay for them later.

Credit is an arrangement to receive cash or goods or service now and pay for them later.

Select all that apply Which of the following are the names of credit bureaus? - Experian - Citibank - TransUnion - JP Morgan - Equifax

- Experian - TransUnion - Equifax

To improve your credit score, it is important to:

- pay your bills on time. - avoid applying for new credit cards. - understand the computation of outstanding debt.

Conditions, one of the five Cs of credit, refers to the general [______] conditions that can affect [_______] your to repay a loan.

Blank 1: economic or financial Blank 2: ability or capacity

Select all that apply What are ways to protect against credit card fraud? - Don't give your card number over the phone unless you initiate the call. - Shred anything with your account number on it. - Reviewing your billing statements. - Writing card number on a postcard or the outside of an envelope. - Making copies of credit cards.

- Don't give your card number over the phone unless you initiate the call. - Shred anything with your account number on it. - Reviewing your billing statements.

Select all that apply What are some disadvantages of credit? -FICO credit scores. - Allows you to buy now, pay later. - Future income may decrease. - The temptation to overspend.

- Future income may decrease. - The temptation to overspend.

Select all that apply A prearranged amount of money that is accessed with special checks is called: - a bank line of credit. - a revolving check credit. - a revolution of credit. - a check access account.

- a bank line of credit. - a revolving check credit.

The Credit Reporting Agency can disclose history of more than 10 years when:

- an individual is being investigated for more than $75,000. - an individual is purchasing life insurance for $150,000 or more.

When creditworthiness is being determined, creditors look for which of the following? - educational pursuits - employment history - net income - personal similarities - total debt

- employment history - net income - total debt

Examples of individuals who are legally able to look at your credit report are:

- financial services, if applying for a loan. - insurance underwriters. - in association with some legitimate business need.

Select all that apply What is typically in a credit file? - ethnicity - former address - whether you rent or own your home - employer information - vehicle information -education background - whether checks have been returned for insufficient funds

- former address - whether you rent or own your home - employer information - whether checks have been returned for insufficient funds

How many years does credit history remain on file if you have not declared personal bankruptcy?

7 years

[_____] users of credit typically pay off their balances each month.

Convenience

[______] users of credit typically pay off their balances each month.

Convenience

Which of the following is the main advantage of credit?

Credit allows you to enjoy goods and services now and pay later.

True or false: Credit cards are not particularly common among consumers.

False

True or false: Taking part in public assistance guarantees you will be denied credit.

False

True or false: The three names of the major credit reporting agencies are Trans Union, Equifax, and Experiment.

False

True or false: You should deplete your savings to finance a purchase.

False

Why is it not good to spend your entire monthly income on credit card bills?

It is not good if you have no money left for emergencies.

Which of the following is NOT true? - Most credit card companies do not offer a grace period - Cardholders who pay in full each month are convenience users - Cardholders who do not pay in full each month are borrowers

Most credit card companies do not offer a grace period

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: Paying for a purchase over a period of time is more costlier than paying for them in cash.

TRUE

What is the meaning of your credit rating?

The credit rating determines the amount of risk you represent for lenders.

Why is paying only the minimum payment detrimental?

The longer it takes for you to pay off a balance, the more finance charges you pay on an item.

Which of the following is a disadvantage of paying the minimum payments on credit cards?

The payment pays for interest and very little of the balance due.

True or false: A credit bureau is a reporting agency that collects credit and other information about consumers.

True

True or false: People who have a strong willingness and ability to repay debts generally have the highest credit ratings.

True

True or false: The grace period is the time allowed to pay the balance on a credit card before interest accrues.

True

True or false: To opt out from prescreened solicitations, you may notify the credit reporting agencies via mail.

True

Capacity is the borrower's financial [_____] to meet the credit obligations.

ability or capability

Customers with previously approved credit may receive other ______, such as advance notice of sales.

extras

Spending all of your money on credit card bills will: - increase your credit score. - increase your credit limit. - give you freedom with money. - leave you with no spending money.

leave you with no spending money.

Convenience Users:

pay off the credit balance each month in full.

A bank line of credit is also known as ______.

revolving check credit

A method to confirm that you can pay for the loan is:

to have enough take-home pay to cover monthly expenses, the loan payment and other expenses.

To calculate the debt payments to income ratio:

total monthly debt payments (excluding home mortgage) are divided by net monthly income.

When you are applying for a bank loan, the bank will:

use the five Cs when determining your creditworthiness.