Chapter 6 Finance

If your monthly net (after-tax) income is $1,500, what should be your maximum amount spent on credit payments?

$300

What would e the maximum limit for an individual's debt-to-equity ratio, excluding the home mortgage?

1.00

Experts suggest that you spend no more than ____________ percent of your net income on credit purchases.

20

The baby boom generation currently represents about 30 percent of the population but holds nearly ____________ percent of the debt outstanding.

60

Most of the information in your credit file may be reported for only _________ years.

7

Karen is notified by her credit card company that the credit limit on her credit card has just been increased to $10,000. This is one example of:

A line of credit

A good example of a closed-end credit is:

A mortgage loan

Which of the following agencies can produce for a subscribing creditor, almost instantaneously, a report about your past and present credit card activity?

Credit Bureau

College students are nit a prime target for credit card issuers. (T/F)

False

Consumer credit dates back to World War II. (T/F)

False

In a closed-end credit, loans are made on a continuous basis and you make at least partial payment. (T/F)

False

Most consumers have only one choice in financing current purchases. (T/F)

False

Most economists do not recognize consumer credit as a major force in the American economy. (T/F)

False

Another name for closed-end credit is:

Installment credit

The maximum amount of credit you are allowed by a creditor is called a(n):

Line of credit

Installment sales credit is a:

Loan that allows you to receive merchandise such as a refrigerator or furniture

What can be included in your credit report?

Marital status

In determining your credit capacity, you first provide for basic necessities, such as:

Mortgage or rent

Another name for open-end credit is:

Revolving credit

Michael purchases a laptop computer from Best Buy. He will make one big payment without paying any interest as long as he pays it on or before August 15. This is an example of:

Single lump-sum credit

An unauthorized person who obtains a credit report under false pretenses may be:

Subject to fine and imprisonment

Which federal law regulates the use of credit reports, requires the deletion of obsolete information, and gives you access to your file?

The Fair Credit Reporting Act of 1971

A good example of an open-end credit is:

The use of a bank credit card to make a purchase

Consumer credit is based on trust in people's ability and willingness to pay bills when due. (T/F)

True

If you consign a loan:

You'll have to pay up to the full amount of the debt if the borrower does not pay

By paying cash for a purchase, you:

forgo the opportunity to keep the cash in an interest-bearing account

If there is incorrect information in your credit file:

the credit bureau must reinvestigate and modify or remove inaccurate data

When did installment credit explode on the American Scene?

with the advent of the automobile in the early 1900s

Kathy purchased a $2,000 digital TV from Young's Appliances. She will make 12 equal payments over the next year to pay for it. She is using:

Closed-end credit

Mortgage loans, automobile loans, and installment loans for purchasing furniture or appliances are examples of:

Closed-end credit

The debit card:

Debuts your account at the moment you buy goods or services

Installment cash credit is a:

Direct loan of money for personal purposes

Although credit permits more immediate satisfaction of needs and desires, it:

Does not increase total purchasing power

There are very few valid reasons for using credit. (T/F)

False

Wi5 an open-end credit, you pay back one-time loans in a specified period of time in equal amounts. (T/F)

False

A credit arrangement that has no extra costs and no specific repayment plan is called:

Incidental credit

Revolving check credit is a:

Prearranged loan for a specified amount that you can use by writing a special check

"Shopaholics" and young adults are most vulnerable to misusing credit. (T/F)

True

Although credit allows more immediate satisfactory of needs and desires, it does not increase total purchasing power. (T/FJ

True

Closed-end credit is used for a specific purpose and involves a specified amount. (T/F)

True

Consumer credit dates back to colonial times. (T/F)

True

Consumer credit refers to the use of credit card for personal needs (except a home mortgage) by individuals. (T/F)

True

Credit is an arrangement to receive cash, goods, or services now and pay for them in the future. (T/F)

True

Credit when effectively used, can help you have more and enjoy more. (T/F)

True

In a closed-end credit, generally the seller holds title to the merchandise until the payments have been completed. (T/F)

True

It is safer to use credit, since charge accounts and credit cards let you shop and travel without carrying large amounts of cash. (T/F)

True

Perhaps the greatest disadvantage of using credit is the temptation to overspend. (T/F)

True

The aging of the baby boom generation has added to the growth of consumer credit. (T/F)

True

The three most common types of closed-end credit are installment sales credit, installment cash credit, and a single lump-sum credit. (T/F)

True

Debt payments-to-income ratio is:

calculated by dividing monthly debt payments (not including house payments) by net monthly income