Finance Chapter 5

True or false: Family loans are always simple arrangements and can benefit both parties with little or no documentation.

False

True or false: The Fair Credit Reporting Act was enacted in 1968.

False, it was in 1971

A -end loan from the bank for personal purposes, home improvements, or vacation expenses is considered installment cash credit.

Closed

The two types of consumer credit

Closed end, and open end

A loan for a motorcycle is an example of:

Closed-end credit

The ECOA covers your mortgage application and bans discrimination based on race, color, age, sex, marital status, national origin, and several other factors.

True

True or false: A reliable way to see if you can afford a loan is to determine what you will give up to make the monthly loan payment.

True

True or false: Banks prefer customers with high credit scores.

True

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 FCBA is a major reason that consumers should buy high dollar items with a credit card rather than a debit card.

True

If your denial for credit is based on a credit report, you can see your file for a fee.

Not true

Lenders do not determine a potential borrower's character by

Verifying the potential borrower's income

Lenders do not determine a potential borrower's character by:

Verifying the potential borrower's income.

What type of applications does the ECOA cover?

The ECOA covers applications for mortgages and home improvement loans.

Why are the five Cs used?

To help identify good customers for credit approval

A credit bureau is a reporting agency that collects credit and other information about consumers.

True

Cardholders who do not pay off their balances every month are known as

borrowers.

When referring to credit, character means:

the borrower's attitude toward credit obligations

Line of credit

the maximum dollar amount of credit the lender has made available to you

Consumer credit through installment payments became popular in the early part of the 20th century due to:

the popularity of the automobile

Finance Charge

the total dollar amount you pay to use credit

Consumer Credit

the use of credit for personal needs (except a home mortgage) by individuals and families, in contrast to credit used for business purposes

The Fair Credit Billing Act's underlining purpose is:

to protect consumer credit ratings

To calculate the debt payments to income ratio:

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

Cardholders who pay off their balances in full each month are often known as

convenience users

Closed-end Credit

pay back one-time loans in a specified period of time and in payments of equal amounts

The five Cs refer to:

policies that help determine who will receive credit

If you borrow $200 and it cost you $22 in interest with a service charge of $5, what is the finance charge?

$27

What is a credit bureau?

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

What demographic originally used credit?

Affluent individuals

revolving check credit

Also called a bank line of credit, this is a prearranged loan for a specified amount that you can use by writing a special check

What is the trade-off for using credit?

Decrease in future available income

What does the Equal Credit Opportunity Act do?

Ensure that persons are not discriminated against because of their race Ensure that persons are not discriminated against because of their sex Ensure that persons are not discriminated against based upon their age

True or false: The reason why people choose long-term financing is because it is cheaper in the long run.

False: Reason: People choose long-term financing because it requires smaller payments, making it cheaper in the short run. However, you pay more interest when you repay a long-term loan.

What occupation began using credit first?

Farmers

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.

Simple Interest:

Principal * rate of interest * time

Step One to Financial Literacy

Reducing your debt-ratio. (Determine the current amount owed for various debts, loans, and other credit accounts. Assess your daily spending habits to reduce your use of credit and to pay off current loans and credit balances. Avoid using credit for current expenses. Make extra payments to reduce amounts owed.)

A line of credit is a ( ) -term loan that is approved before you actually need the money.

Short

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

The Fair Credit Reporting Act of 1971:

How does a consumer confirm that he or she can afford a loan payment?

The consumer's take-home pay is covers monthly expenses, loan payment, and other expenses.

What do the five Cs mean?

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

Character, capacity, capital, collateral, and conditions are known as:

The five c's

What are the advantages to overspending with credit?

There are no real advantages to overspending on credit

What are the best reasons to maintain good credit history?

You will have a good FICO score. You are less likely to be denied credit.

These are prearranged loans for a specified amount of money that is accessed with special checks

a bank line of credit a revolving check credit

Interest

a periodic charge for the use of credit, or other finance charges

A bank line of credit is also known as:

a revolving check credit

Credit

an arrangement to receive cash, goods, or services now and pay for them in the future

installment credit

in which the debt is repaid in equal installments over a specified period of time.

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

interest costs

Open-end Credit

loans are made on a continuous basis and you are billed periodically for at least partial payment

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 taken directly from the text.

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