Personal Finance
if you have probably reached the upper limit of debt obligations, your debt-to-equity ratio is about
1.
Experts suggest that the debt payments-to-income ratio should be a maximum of
20%
A typical grace period offered by many credit card issuers is
20-25 days
Which of the following is NOT associated with credit cards?
A debit to your checking account
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:
Adding up basic monthly expenses and subtracting this total from take-home pay, plus figuring out what to give up to make the monthly loan payment.
When misused, credit can result in
All of the choices are correct.
The Equal Credit Opportunity Act (ECOA) prohibits a lender from discriminating based on
All of these are prohibited
A loan officer is examining whether or not to offer you a loan today. Specifically, she is examining your income and debts. Which of the five Cs of credit is the loan officer reviewing?
Capacity
Molly purchased a $1,500 dishwasher from Best Appliances. She will make 12 equal payments over the next year to pay for it. She is using
Closed-end credit
The use of property or savings to secure a loan relates to
Collateral
Home equity loans
Have interest that is tax-deductible
If you miss payments on a home equity loan, you can lose your
House
The periodic charge for the use of credit is called
Interest
Home equity loans should be used for
Major expenses, such as home improvements or education
When calculating the debt-to-equity ratio, which of the following is NOT included?
Mortgage balance
Which of the following is often considered to offer the least expensive loans (i.e., loans with low interest)?
Parents or family members
A cash advance
Requires you to pay interest every day until you repay the cash advance
A loan that must be repaid in total on a specified day, usually within 30 to 90 days, is
Single lump-sum credit
A line of credit is
The maximum dollar amount of credit the lender has made available to a borrower
Bankruptcy courts treat gift cards
The same way they handle unsecured debt.
Many people expect which of the following?
Their incomes to increase to make it easier to make payments on past credit purchases
Which of the following is NOT correct
Using credit can increase the amount of money that will be available to spend in the future
Which of the following is NOT correct?
Using credit cards typically provides a "float" of up to 10 days.
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 of the following except
Whether the good or service will be worth more because it was purchased with credit instead of cash
Which of the following can result from a failure to repay a loan?
all of the above can lead to failure to repay a loan
Which of the following is a valid reason for using credit?
all of the reasons
Which of the following questions is NOT needed before deciding how and when to make a major purchase?
all of these should be considered
Installment credit, in which the debt is repaid in equal installments over a specified period of time, exploded on the American scene with the advent of the:
automobile
The question "What are your assets and net worth?" relates to
capital
the question "Will you repay the loan?" relates to
character
A credit card holder who pays off his balances in full each month is known as
convenience user
Consumer credit:
dates back to colonial times
Which of the following electronically subtracts money from your savings or checking account to pay for goods and services?
debit card
Which of the following is an example of open-end credit?
department store credit card
A consumer applies for open-end credit to make a single purchase, such as a large appliance.
false
A disadvantage of using credit is the convenience it offers when making a hotel reservation or renting a car.
false
A personal bankruptcy remains on a credit file for no more than five years.
false
A secured credit card is most appropriate for someone with a strong credit history
false
A trade-off of using credit is that it increases the amount of money that will be available to spend in the future.
false
According to law, a creditor may threaten your credit rating while you are negotiating a billing dispute.
false
According to the Fair Credit Billing Act of 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
Closed-end credit consists of loans made on a continuous basis with periodic bills for at least partial payment.
false
Consumer credit may allow 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 net (after-tax) 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
Interest paid on a credit card is tax-deductible.
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 creditor should 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 add-on interest calculation uses this formula: Interest = Principal × Rate of interest × Time.
false
The amount of interest paid on a bill is not related to the length of the loan
false
The annual percentage rate is lower than the stated rate for loans that are repaid in monthly payments.
false
The debt-to-equity ratio is calculated by dividing your total liabilities, including your mortgage, by your 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 lender 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
The most expensive loans are often provided by parents or other family members
false
Typically, credit use is not a contributing factor to living beyond your means.
false
Using the simple interest formula, the interest on a $1,000 loan at 5 percent interest for one year is $55.
false
You have a legal right to sue a credit bureau if you observe an error in your file.
false
A direct loan for personal purposes, home improvements, or vacation expenses is called
installment cash credit.
Which of the following is an example of closed-end credit?
mortgage loan
Which of the following is NOT a valid reason for borrowing?
paying for everyday living expenses
The maximum dollar amount of credit the lender has made available to a borrower
revolving check credit
Perhaps the greatest disadvantage of using credit is
the temptation to over spend
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 of 1975, a consumer may tell a credit card company to stop payment for a defective good if the consumer has made a sincere attempt to resolve the problem with the store
true
Although credit allows immediate satisfaction of needs and desires, credit does not increase total purchasing power.
true
Closed-end credit is used for a specific purpose and involves a specific amount.
true
Consumer credit dates back to colonial times where farmers came to use it extensively.
true
Consumer credit refers to the use of credit for personal needs (except a home mortgage)
true
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 scores are used by creditors to predict how likely it is that you will repay a loan
true
If you are a cosigner for a loan and the debt is not repaid, 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 its worth.
true
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, such as large appliances or furniture.
true
Most information in your credit file (except bankruptcies) may be reported for only seven years
true
Open-end credit consists of loans made on a continuous basis with periodic bills for at least partial payment.
true
Researchers have discovered a link between credit scores and impatience.
true
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made it more difficult for consumers to file a Chapter 7 bankruptcy and forces them into a Chapter 13 repayment plan
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 open-end creditors explain how they calculate the finance charge.
true
The easiest loans to obtain are also the most expensive. The most expensive loans are provided by finance companies and pawn shops.
true
The information gathered from your loan application and the credit bureau are factors of your credit rating.
true
The least expensive loans (loans with low interest) are often provided by parents or other family members.
true
The longer the term for a loan at a given interest rate, the greater the amount you must pay in interest charges.
true
To protect your credit card, you should keep a record of your credit card number separate from your card.
true
When used effectively, credit can help a consumer have more and enjoy more.
true
You can lend money to micro-entrepreneurs through Kiva.org, a microlending website.
true
You may not know that your identity has been stolen until you get bills for a credit card account that you never opened
true
