Wise test

What is meant by an uncollateralized loan?

A personal loan without assets to cover the loan amount. Reason : ?Collateral? is a tangible asset that is used to secure a loan. In the case of a mortgage, the actual house or apartment serves as the collateral for that loan. The same is true of a car loan. If the person who takes the loan, defaults on that loan, the bank or other lending agency has the right to keep the collateral. Therefore, an ?uncollateralized loan? is one that does not have an asset to support the loan.

Debbie was behind on her stereo installment credit contract payments. As a result, the creditor seized and sold the stereo. The sale price did not cover all of the loan balance, the creditor got a court to order her employer to withhold part of her wages. This court order is called:

: Garnishment Reason : A garnishment is a court order requiring an employer to pay part of an employee's wages to the creditor. If the employer doesn't comply with the garnishment, the court may declare the employer to be held in contempt of court. A wage assignment is a contract clause in which the debtor agrees in the original contract to let the creditor ask his/her employer to withhold part of his/her wages and pay them to the creditor if the creditor shows that the employee has defaulted on a credit contract. Because a wage assignment is not a court order, an employer does not have to agree to it.

Consumer Credit Counseling Services (CCCS) offer:

Debt repayment plans Reason : There are hundreds of local Consumer Credit Counseling Services (CCCS) across the country that counsel people about how to get out of debt and manage their money. They also work out debt repayment plans with a consumer's creditors in which the consumer gives CCCS part of each paycheck to pay creditors.

Which of the following is considered to be open-end credit?

Department store charge cards. Reason : Open-end credit is a revolving live of credit that is offered by banks and other lenders to consumers. There is a limit set on the line of credit and the funds, products or services are accessed using a credit or debit card, check, store charge card or cash advance. Consumers pay interest on the outstanding balance. A car loan is made for a specified amount and a specific length of time and is therefore considered closed-end credit. A mortgage loan is also considered a form of closed-end credit since the house serves as collateral for the loan which is made at a specified interest rate for a specified time period.

Jim is a college senior with $50,000 in student loans. He earned $2,000 last year. He has no savings so he charged a $5,000 vacation on his credit card. How would you characterize Jim's use of credit?

It is irresponsible use of credit because his current income is too low Reason : With a low income, outstanding loans, and such a large charge, he might make only be able to pay the minimum payments on his credit card debt. So, it will take him years to pay off the $5,000 vacation. The outstanding balance plus the finance charges make the cost of the vacation much more expensive than the purchase price.

When you mail your credit card payment on the due date, your payment will be considered:

Late, and the company will assess you a late fee Reason : A credit card payment is considered to have been made on the date the payment is posted to the account, not when it is mailed. Since it takes several days for the payment to reach the creditor and go through the posting process, your payment would not be posted to your account "by" the due date and thus would be a late payment.

A person has three credit cards with very large outstanding balances and is unable to make payments on any of them. Which action should the person take?

Notify the credit card companies in order to negotiate a new payment plan. Reason : When experiencing financial difficulties, the first action to take is to notify creditors, in this case the three credit card companies. Quite often the company will assist in negotiating new terms.

Ms. Jackson contacted a mortgage company about refinancing her mortgage. The mortgage company gave her a home loan with unusually high costs and without regard to her ability to repay. This practice is called:

Predatory lending Reason : Predatory lending uses abusive practices in any type of credit but the lenders primarily target applicants for home mortgages, home equity, and home refinancing loans. This practice tends to occur in low-income neighborhoods, particularly those with a large number of elderly or minority homeowners.

Sue bought a copy of her credit report, and found incorrect information in it. She can:

Request that the credit bureau correct her credit report Reason : If requested by the consumer, the credit bureau must reinvestigate the challenged information on a credit report, and then modify, or remove inaccurate information. The consumer cannot be charged a fee for the investigation or credit report correction. If the reinvestigation does not resolve the matter, you may file your version of the story in a brief statement, and the credit bureau must include your statement in all future reports containing the disputed item. You may also request that the credit bureau send copies of your corrected statement to anyone who has received a credit report containing the disputed item during the last six months (two years for employment reports).

You can continue to charge purchases on your credit card when:

The amount you owe on the card is below your credit limit. Reason : When the credit card account balance is greater than the credit limit, the consumer cannot charge anymore on the card because that would be more credit than he was approved.

Victims of predatory lending practices are typically

The elderly and people with a poor credit history Reason : Predatory lending uses abusive practices in any type of credit but the lenders primarily target applicants for home mortgages, home equity, and home refinancing loans. This practice tends to occur in low-income neighborhoods, particularly those with a large number of elderly or minority homeowners who have a poor credit history, or need cash quickly. These lenders use deceptive advertising and high pressure salespeople and give repayment terms that the borrower cannot afford.

Stephanie has several open department store credit charge cards that she has not used in two years. There are no credit balances on any of the accounts. The effect these charge cards may have on her application for a loan or mortgage is:

They are open accounts that she could use, will be considered in any application for credit, and could make it difficult for her to get a loan or mortgage. Reason : Stephanie's credit card accounts are still open because she has not directed the creditor to close the accounts. Stephanie could use these open accounts, and they will be considered in any application for credit. If the maximum credit on the unused accounts together with the maximum credit on her active accounts add up to more than she is likely to be able to pay, it could be difficult for her to get a loan or mortgage. She should close unused credit cards. Some creditors automatically close a credit account if it has not been used for a specific period of time, usually a three-year minimum.

Who does a credit bureau or credit reporting agency speak to when collecting information about you for your credit file?

Your creditors and landlords Reason : Credit bureaus and credit reporting agencies get their information from stores, banks, and other creditors, as well as from public records such as court judgments. The information about a consumer is compiled by the credit bureau or credit reporting agency into a credit report that is a record of that particular consumer's transactions and payment patterns

When a person brings an item to a pawnshop to obtain cash, the transaction is considered

a collateralized loan. Reason : Since pawnshops make loans based on determining the value of collateral (a tangible object such as jewelry, cameras, musical instruments) they receive, the loan is considered a collateralized loan.

When a person declares bankruptcy that fact will appear on the person?s credit report

for a 10 year period. Reason : Most of the adverse information on a credit report appears for 7 years. After a declared bankruptcy, the limit is 10 years.

To qualify for a Federal Housing Administration (FHA) loan, a person must generally

fulfill income guidelines. Reason : The Federal Housing Administration (FHA) insures lenders who make mortgage loans that are riskier than regular bank loans because FHA loans are made to individuals who usually would not qualify for regular low-cost mortgages from banks (usually first-time home buyers with lower income and a weaker credit score). The objective of this federal agency is to encourage home ownership while helping to protect the lenders at the same time.

A company offers direct deposit of employees' earnings. The company will still provide each employee with a statement that lists the employee?s

gross pay, the amount and type of deductions and net pay. Reason : Employees who take advantage of a direct-deposit program for depositing their pay checks still receive a complete payroll statement at the end of each pay period. These statements indicate gross and net pay, deductions for items such as taxes and company retirement savings plans as well as earnings to date. Health insurance as well as payroll taxes are also shown on the statement.