Financial Lit Credit Quiz Review

Transferring debt from one credit card to another

Balance transfers

Please explain the difference between close‐end and open‐end (revolving) credit providing one example of each.

Closed‐end credit is a loan which the borrower must repay the amount in a specified number of equal payments. Examples of closed‐end installment credit include automobile loans, mortgages, and education loans. Open‐end (revolving) credit is extended as a line of credit established in advance so that the borrower does not have to apply for credit each time new credit is desired. An example of open‐end credit is a credit card.

Charged if the account balance goes over the set credit limit

Over‐the‐limit fee

The interest rate charged on new transactions if the penalty terms in the credit card contract are triggered

Penalty APR

Is a 13% or 18% APR for a credit card better? Why?

13% is a better APR for a credit card because this means that the consumer is being charged a lower percentage interest rate on the purchases made.

What is the difference between a debit card and a credit card?

A credit card is pre‐approved credit which can be used for the purchase of goods and services now and payment of them later. A debit card is a plastic card which looks like a credit card, but is electronically connected to the cardholder's bank account.

What are two advantages and two disadvantages to credit cards?

Advantages: convenient, useful for emergencies, often required to hold a reservation, purchase 'big ticket' items earlier, easy form of debt consolidation, protection against rip‐offs and fraud, establish a good credit rating. Disadvantages: Interest is costly, additional fees are common, tempting to overspend, privacy is an increasing concern, personally responsible for lost/stolen cards, identity theft is easier, and can lost financial freedom from over spending.

A yearly fee that may be charged for having a credit card

Annual Fee

The cost of credit expressed as a yearly interest rate

Annual Percentage Rate (APR)

The maximum amount of charges allowed to an account

Credit Limit

How do credit cards affect an individual's credit history (which includes a credit report and credit score)?

Credit cards can positively or negatively affect an individual's credit history depending upon how the card is used.

Credit card applicants will always be accepted for the card they apply for, but they may have to pay a higher interest rate.

FALSE

It is better to use a debit card rather than a credit card when purchasing items online.

FALSE

People under the age of 21 can never receive a credit card.

FALSE

What will happen if a cardholder makes a late credit card payment?

In most cases, the cardholder will be charged a late‐fee. Depending upon the terms of the specific credit card, the cardholder will often trigger the penalty APR by making a late payment. The cardholder will also negatively affect their credit history, which includes their credit report and credit score.

The charge for borrowing money

Interest

The interest rate that may be charged right after a credit card account is opened

Introductory rate

Charged when a cardholder does not make the minimum monthly payment by the due date

Late‐payment fee

What are two positive uses of credit cards AND two negative uses of credit cards?

Positive: paying credit card balances in full every month, paying credit card bills on time, applying for only credit cards that are needed, keeping track of all charges by keeping receipts and using a check register in the same manner that individuals keep track of personal checks or debit card transactions, and checking the monthly credit card statement for errors. Negative: making late credit card payments (this may trigger penalty fees, a higher penalty interest rate, and will hurt the credit score), paying only the minimum payment, exceeding the card's credit limit (usually triggers a penalty fee), charging items that can't be paid off immediately, and owning too many credit cards.

Identify three safety tips when using a credit card.

Sign the back of the card with a signature and "Please see ID," Do not leave cards lying around the home or office, close unwanted accounts in writing and by phone and cut up the card, never give out the account number unless making purchases, deep a list of all cards, account numbers, and phone numbers separate from cards, and report a lost or stolen credit card immediately.

Having no credit history can cause an individual to be denied credit.

TRUE

The Truth in Lending Act limits an individual's liability for unauthorized credit card charges, in case a credit card is lost or stolen.

TRUE

Summarize three cardholder protections the 2009 CARD Act created.

To receive a credit card, consumers must be 21 years of age or older Interest rates on existing balances generally can't be raised unless a cardholder is 60 days or more past due. Must be notified of any significant changes in rates and fees at least 45 days before the changes take effect Cardholders now have to "opt‐in" to allowing transactions that take them over their credit limit Credit card issuers are required to send a monthly statement at least 21 days before a credit card payment is due Credit card payment due dates must be consistent month to month In most cases, credit card companies cannot increase rates for the first 12 months after an account is open Non‐penalty fees cannot exceed 25% of the initial credit limit

An interest rate that may change depending on other factors, such as the prime rate

Variable‐rate APR