Finance Exam 2
The _____ handles complaints regarding credit cards online. A) CFPB B) NAPB C) GAAP D) CARD
A
Which of the following is not a disadvantage of using credit? A) Failure to repay a secured loan could result in loss of the property B) Responsible use of credit can lead to stability C) Using credit costs money D) Credit does not increase total purchasing power
B
Why are the five Cs used? A) To help identify ways to reduce fees for existing customers B) To help identify customers who can be charged more C) To help identify good customers for credit approval
C
With ______________ end credit, you pay back one-time loans in a specified period of time and in payments of equal amounts. With ____________ end credit, you pay loans back on a continuous basis and you are billed periodically for partial payments.
Closed, open
In a straight bankruptcy, many but not all _____________ are forgiven.
Debts
Credit allows you to buy clothes today and pay for them in the ____________
Future
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.
Net
A line of credit is a _________ term loan that is approved before you actually need the money.
Short
If you must _____ to pay off old debts, then this is a warning sign of debt A) borrow B) work C) save
borrow
What demographic originally used credit? Multiple choice question. A) Affluent individuals B) Politicians C) Everyone
A
Subtract monthly expenses from income. If the difference is the less than the loan payment, you can afford the loan. True or False
False
How does a consumer confirm that they can afford a loan payment? A) The consumer's take-home pay covers monthly expenses, loan payment, and other expenses. B) The consumer's budget does not include the loan payment amount. C) The consumer has to use the loan to make the payments.
A
Select all that apply A billing error is: A) when the business mails your statement to an incorrect home address B) a mathematical error C) showing your credit score on your statement D) being forced to pay for defective goods E) goods or services purchased without your authorization
A, B, D, E
Select all that apply What are the best reasons to maintain good credit history? A) You are less likely to be denied credit. B) You will be charged no interest on your credit. C) You will have a good FICO score. D) ECOA is less likely to discriminate.
A, C
Which of the following prohibits certain practices by agencies that collect debts for creditors? A) Fair Unsolicited Collection Agency Act B) Fair Debt Collection Practices Act C) Fair Trade Commissioning Act
B
A loan for a motorcycle is an example of: Multiple choice question. A) open-end credit B) vehicle credit C) closed-end credit
C
Which of the following is not true? A) The APR is the relative cost of credit on a yearly basis. B) APR is a key to comparing credit costs. C) The finance charge does not include credit-related insurance premiums. D) The finance charge is the total dollar amount you pay to use credit.
C
A line of _____________ is the maximum amount of funds lent to a consumer.
Credit
_________ is an arrangement to receive cash, goods, or services now and pay for them in the future.
Credit
The reason why people choose long-term financing is because it is cheaper in the long run. True or False
False
A credit bureau is a reporting agency that collects credit and other information about consumers. True or False
True
Credit is defined as an arrangement to receive cash, goods, or services now with payment in the future. True of False
True
The Consumer Financial Protection Bureau has a website for registering complaints regarding credit card situations. True or False
True
The FCBA is a major reason that consumers should buy high dollar items with a credit card rather than a debit card. True or False
True
The trade-off of using credit is it decreases the availability of money to spend in the future. True or False
True
The Fair Debt Collection Practices Act prohibits certain practices by agencies that collect debts for creditors. True or False
True
How does the Fair Credit Billing Act protect consumer credit ratings? A) By allowing consumers to challenge charges that are false and avoid having delinquent charges added to their credit history B) By allowing the consumer to create and establish their own credit score so they do not have to pay as much interest C) By allowing consumers to decrease the total debt of their credit and keep the merchandise
A
What should you do when you receive a phone call claiming to be from your bank? A) Hang up, call your local bank, ask if there is something wrong with your account(s), and go to the bank the next day to verify your account(s) B) Discuss the issue and give your information over the phone because your bank called you and verified information C) Give your personal information over the phone, talk with the person, and visit your bank the next day D) Discuss the issue and give your personal information over the phone
A
What would be the interest cost (simple interest) for a $3,000 loan with a 8% rate for nine months of a year? A) $180 B) $300 C) $240 D) $400
A
Which of the following is NOT true? A) Most credit card companies do not offer a grace period B) The average cardholder has more than nine credit cards C) Cardholders who do not pay in full each month are borrowers D) Cardholders who pay in full each month are convenience users
A
Why should you keep personal information private? A) To avoid identity theft B) To avoid losing personal information C) Because it is good to stay private
A
What is a credit bureau? A) A reporting agency that tracks your dining preferences B) A reporting agency that collects information on how promptly people and businesses pay their bills C) A reporting agency that tells consumers the exact method to increase their credit score D) A reporting agency that collects information to provide to future employers only
B
Where does the Consumer Credit Reporting Act place the burden of proof for accurate credit information? A) It does not regulate the burden of proof, but states that all reporting of credit must be within 90 days of credit transactions. B) It places the burden on credit reporting agencies. C) It places the burden on the consumer. D) It does not regulate the burden of proof, but provides restrictions for the format of credit card statements.
B
Which of the following is true? A) Cosigning a loan is never risky. B) Creditors can use same collection methods with cosigner as could be used with the borrower. C) Your credit is not impacted if you cosign a loan, the borrower defaults, and the debt is not repaid. D) The creditor must try to collect from the borrower before collecting from a cosigner
B
he Fair Credit Billing Act's underlining purpose is: A) to protect the credit agencies from consumer complaints B) to protect consumer credit ratings C) to get the lowest possible interest rate for its clients D) to collect the outstanding debt consumers owe creditors
B
Select all that apply Which of the following are good deterrents of identity theft? A) Not opening credit card accounts B) Keeping checks in a safe place C) Changing your mailing address frequently D) Shredding documents before throwing them away
B, D
Select all that apply Which of the following is something that the Equal Credit Opportunity Act is designed to do? A) Show bankers how to ignore retirement income when evaluating loans B) Ensure that persons are not discriminated against because of their sex C) Offer credit to consumers through the ECOA bank D) Ensure that persons are not discriminated against because of their race E) Ensure that persons are not discriminated against based upon their age
B, D, E
Select all that apply Positive implications of the use of credit include: A) default B) improved credit score C) bankruptcy D) loss of creditworthiness E) increased creditworthiness
B,E
If you cannot make a payment on a debt when due, contact the _________ at once to work out a modified payment plan.
Bank
Family members may only charge interest they would have earned on the money if they had deposited it in a ______ account. A) sweep B) commercial bank C) savings D) local bank
C
If you borrow $200 and it cost you $22 in interest with a service charge of $5, what is the finance charge? A) $22 B) $227 C) $27 D) $5
C
In which of the following are many but not all debts forgiven? A) Partial debt recovery B) Lending leniency reporting C) Straight bankruptcy D) Incomplete bankruptcy
C
To calculate the debt payments to income ratio: A) net worth is divided by the consumer's total liabilities B) debit subtracted from equity is divided by net income C) total monthly debt payments (excluding home mortgage) are divided by net monthly income D) total liabilities are multiplied by the consumer's net income
C
Under the Consumer Credit Reporting Reform Act, what would happen if a Credit Bureau verifies inaccurate information? A) The consumer must pay the state attorney to sue for damages. B) The Credit Bureau pays a fine to the Fair Credit Reporting Agency. C) If the Credit Bureau is wrong about information, the consumer can sue for actual, possibly punitive damages. D) The Credit Bureau corrects the information and is not liable for damages.
C
What is an irresponsible use of credit? A) Having $30,000 in debt and working full-time. B) Paying for your expenses and working hard. C) Purchasing goods until your credit limit is reached. D) Flying to another city for a job interview.
C
What is the best strategy if you can't make a payment on a debt? A) Contact your credit union or bank in hopes of borrowing to make the payment. B) Make a partial payment in hopes of making a compensating payment next month. C) Notify the creditor as soon as possible in an attempt to work out a modified payment plan. D) Wait until the debt is turned over to a collection agency since they will have the authority to work out a payment schedule.
C
What is the trade-off for using credit? A) Purchasing power benefit B) Current income C) Decrease in future available income D) Increase in credit limit
C
What type of applications does the ECOA cover? A) The ECOA covers the creditors who appraise the value of property. B) The ECOA participates with the Secret Service to fight identity theft. C) The ECOA covers applications for mortgages and home improvement loans.
C
Which of the following is not a warning sign of debt problems? A) You borrow to pay off old debts. B) You often are late on payments. C) You pay your monthly credit card statement in full. D) You make only minimum monthly payments on credit cards.
C
Which of the following statements is not true? A) If you are denied credit based on a credit report, you are entitled to know the specific information that led to the denial. B) If you are denied credit, you are entitled to know why. C) If your denial for credit is based on a credit report, you can see your file for a fee. D) You are entitled to ask a credit bureau to correct its records if a mistake took place that led to you being denied credit.
C
A ______________ end loan from the bank for personal purposes, home improvements, or vacation expenses is considered installment cash credit.
Closed
An example of ___________end credit is an automobile loan, whereas an example of _________end credit would be a credit card.
Closed, open
If you _____________ a loan and the borrower does not pay the debt, you may have to pay up to the full amount of the debt as well as any late fees.
Co-sign
What are the advantages to overspending with credit? A) Financial habits that last for a long time B) Less and less money to pay off debt C) Having resources to help friends D) There are no real advantages to overspending on credit E) Losing sight of financial goals
D
Which of the following is not a way to recognize, avoid, and report fraud on the Internet? A) Review monthly bank and credit card statements B) Use a secure browser C) Keep records of online transactions D) Give your password to someone online you think you can trust
D
Which of the following is not an advantage of using credit? Multiple choice question. A) Credit cards allow you to make purchases online B) Credit cards usually have a grace period C) Credit cards are a substitute for cash D) Misuse of credit can lead to long-term financial problems
D
Why do banks prefer customers with high credit scores? A) Customers who have a lower score will often pay bills on time. B) The bank considers a high-score customer to be more risk. C) The bank likes customers with high scores because they have lots of money. D) The customer who has a high score will often pay bills on time.
D
Credit cards are not particularly common among consumers. True or False
False
Family loans are always simple arrangements and can benefit both parties with little or no documentation. True or False
False
Long-term financing is more costly than short-term financing because of higher __________ costs.
Interest
