Finance Final Exam: Ch 8
The use of credit involves receiving cash, goods, or services with an obligation to pay later. Which statement is not an opening line to the use of credit in a shopper's language?
"put it on my debit"
Assuming the APR on your credit card is 18% and your average daily balance this month was $10,000, what will your interest or finance charges for the month be?
$150
Assuming the APR on your credit card is 24% and your average daily balance this month was $8,000, what will your interest or finance charges for the month be?
$160
Credit card insurance is usually unnecessary since your liability on credit card losses is limited by law to
$50
What rights would a college friend of your have whose credit card application was denied
. The right to point out errors in her file B. The right to have the file be accurate C. The right to request mistakes in the file be corrected D. The right to view her credit report E. All of the above are correct answers*****
Most credit cards have a ________ grace period from the date of the bill to make payments.
21 to 25-day
The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act established fee caps for cards. Card fees cannot total more than ________ of the initial credit limit.
25%
The lowest FICO a consumer can achieve is
300
Your credit card company is required to send you a notice ________ before they can increase your interest rate, change certain fees (such as annual fees, cash advance fees, and late fees), or make other significant changes to the terms of your card.
45 days
How long do you have to begin an investigation into a billing problem under the Fair Credit Billing Act?
60 days
More than ________ of the 25 biggest credit card issuers do not charge annual fees.
70%
According to the Keown book, the national average FICO score is around
711
Which of the following regarding credit applications analysis is incorrect?
A. Credit card issuers normally assign a minimal acceptable credit cutoff score. B. Lenders may not discriminate on the basis of age. C. You are entitled to one free copy of your credit report each year from the three major credit bureaus. D. Bankruptcy remains a mark against you for a period of ten years after it occurs. E. None of the above statements is incorrect; all of the above are true statements.*****
Which of the following are important to convenience users of credit cards
A. Interestminus free grace period B. Card benefits and perks C. Low annual fee D. All of the above****
The Fair and Accurate Credit Transactions Act (FACT) allows everyone to a free copy of their credit report every year. Why is it a good idea to check your credit report every year?
A. To make sure that there are no errors on it B. To make sure that someone has not stolen your identity C. To challenge any unauthorized entries D. All of the above are good reasons.*****
When you find you cannot pay your credit card bills you must take action! Which option is advisable?
A. Use a secured loan or home equity loan to get a lower interest rate to pay the cards off. B. Adjust your budget to allow for more money to pay for the cards. C. Change to a less expensive credit card or cards. D. Use savings to pay off some or all of current credit card debt. E. All of the above*****
Which of the following apple to getting a cash advance with a credit card?
A. You begin paying interest immediately. B. The interest rate may be higher than on regular purchases. C. Cash advances are available at ATM machines. D. There may be a cash advance fee. E. All of the above****
Your credit scores affect
A. your mortgage rate. B. the rate you pay on your credit cards. C. the amount of junk mail offering additional credit cards that you receive. D. the size of your credit line. E. All of the above are correct answers*****
The choice of a credit card is a matter of personal credit card philosophy. If you are a credit user, the most important decision factor is the card's
APR on the unpaid balance
What type of a credit card is issued in partnership with a specific charity or organization, such as Mothers Against Drunk Driving (MADD), the National Rifle Association (NRA), or a college or university?
Affinity card
Monty currently has a Visa card from his bank with the following terms: 18% on purchases, 24% on cash advances with a 4% cash advance fee on the amount, and a default or penalty rate of 36%. His current statement shows a balance of $6,000. So far he has only taken one cash advance, withdrawing $1,000 from a casino in Las Vegas a year ago, which he has already paid off. Lately he has been having a hard time paying more than the minimum payment of 4% of his balance. The only assets he owns are a sevenminus yearminusold car and a $2,500 certificate of deposit that has a 5% APR.
All of the above
Jerome has three major credit cards and makes payments on them each month. He has had one of them for six years, another for three years, and the last for eleven months. Making just the minimum payment has become automatic at this point, and Jerome barely even looks at the statements. Jerome is beginning to think that his approach to credit may be faulty, and he wants to find out how to adjust it. He just applied for two additional credit cards. Most likely, Jerome is
All of the above are correct
The Truth In Lending Act requires that all consumer credit agreements disclose the ________ in bold print?
Annual Percentage Rate (APR)
One of the following lists constitutes the five Cs of credit. Select the correct one.
Character, capacity, capital, collateral, conditions
The ________ provides a single location for financial protection and oversight and its mandate is to help consumers make better decisions.
Consumer Financial Protection Bureau (CFPB)
Having completed a personal finance class, you are now ready to give some advice to your free- spending friends. Which one is unwise?
Quit using credit cards altogether
Susan has always maintained an excellent credit rating over the years. She has an annual income of $63,000, has lived at her current residence thirteen years, and has worked at the same job for eight years. Susan works in a clerical position, has two credit cards and maintains two bank accounts. Susan is very conservative and has all of her savings ($12,000) in a NOW account at her local bank. One of her credit cards has a balance of $550 and has an APR of 23%. Susan has been making monthly minimum payments on the credit card. Out of curiosity she would like to know how her credit card companies judge her creditworthiness and what she can do to improve her financial situation. What should Susan do in regards to her credit card balance?
She should use some of her savings to pay off the balance in full immediately.
A(n) ________ card is a credit card that does not offer revolving credit and requires full payment of the balance at the end of each month.
T&E
Jerome has three major credit cards and makes payments on them each month. He has had one of them for six years, another for three years, and the last for eleven months. Making just the minimum payment has become automatic at this point, and Jerome barely even looks at the statements. Jerome is beginning to think that his approach to credit may be faulty, and he wants to find out how to adjust it. He just applied for two additional credit cards. Based on his credit card usage, which of the following aspects of a credit card should be most important to Jerome?
The APR on the unpaid balance
What is the main distinguishing features for T&E cards?
They do not offer revolving credit and the full balance must be paid each month
Angela noticed a list of creditors at the bottom of her credit report. Some of the inquiries were voluntary and some were involuntary. What is the difference between the two?
Voluntary inquiries are due to your own credit requests; while involuntary inquiries are typically by creditors who seek to offer you a pre-approved credit offer.
Which of the following is not a single-purpose credit card?
Wells Fargo Visa
Credit cards issued in conjunction with particular charities or organizations, like the Sierra Club or the Humane Society, that send a portion of their annual fee or percentage of their purchases back to the sponsoring organization are known as
affinity cards
Which of the following is the best strategy for controlling and managing your credit cards and open debt?
all are good strategies
By law you have certain rights in connection with the credit bureau. They are
all of the above
Getting a credit card while a college student is an excellent idea because
all of the above
The Consumer Financial Protection Bureau was created with the oversight authority necessary to ensure that
all of the above
Wally currently has a balance of $14,500 on his credit cards and he is having a hard time making the minimum payments on them. He has missed several payments and is now paying the default APR of 29.99%. He and his wife own a nice home with $40,000 in equity. They have $7,500 in a certificate of deposit with a 4% APR. He has come to you in tears asking for advice. What would you tell him to do?
all of the above
The main factor that determines the cost of a line of credit is the ............, which is also considered the true simple interest rate paid over the life of the loan
annual percentage rate (APR)
Which method sums the outstanding balances owed each day during the billing period and divides by the number of days in the period?
average daily balance
According to the Bankcard Holders Association of America, about 95% of all bank card issuers use the
average daily balance method
The CARD Act of 2009 toned down the actions of credit card issuers by
banning offers of freebies such as free pizza and T-shirts.
Changes to your credit card policies and rates are usually announced via "________"; which are notices enclosed with your bill.
bill stuffers
Typically, the credit card issuer allows you a grace period, which means
both B and C apply
Mary is 38 years old and many of her friends have gotten into trouble using their credit cards to buy things they can't afford. She feels lucky that her grandmother told her that credit is dangerous and that she should always pay cash for everything. So far, Mary has never had credit in her name and even paid cash for her car. From a personal finance perspective, what advice would you give to Mary?
both C and D would be good advice for Mary
A low FICO score
can cost you quite a bit when you get a mortgage loan
Consider the "Five Cs of Credit." The category that considers your current income level and current borrowing level is
capacity
Consider the "Five Cs of Credit." The category that considers the size of your investment holding or portfolio is
capital
Which of the 5 Cs of credit would your actual home be in relation to your mortgage?
collateral
________ is not information generally found in your credit report.
college attended, grades, etc.
Jerome has three major credit cards and makes payments on them each month. He has had one of them for six years, another for three years, and the last for eleven months. Making just the minimum payment has become automatic at this point, and Jerome barely even looks at the statements. Jerome is beginning to think that his approach to credit may be faulty, and he wants to find out how to adjust it. He just applied for two additional credit cards. What advice might you give to Jerome?
consider using savings to pay off current credit car debt
A company that gathers and sells consumers' financial history to creditors is a
credit bureau
The process of mathematically evaluating your creditworthiness to obtain credit is called
credit scoring
Roxanne has always maintained an excellent credit rating over the years. She has an annual income of $23,000, has lived at her current residence three years, and has worked at the same job for eight years. Susan works in a clerical position, has two credit cards and maintains two bank accounts. Which one of the following items of evaluation would Roxanne score the highest on?
employment history
According to the Bankcard Holders Association of America, about 95 percent of all bank card issuers use the adjusted balance method.
false
Angela tried to use her Macy's credit card at Target but was unsuccessful because Target only accepts Target credit cards
false
Cash advances generally require upfront fee of 4 to 6% of the amount advanced
false
Changes to credit card policies and rates are usually announced via "bill addendums," which are notices enclosed with your bill.
false
Credit card issuers are free to set up shop near large university campuses and offer free gifts- anything from free or discounted flights to free Frisbees
false
Credit purchases made for personal needs like home mortgages or car loans are referred to as revolving credit.
false
Everyone who accessed your credit report within the last seven years appears in an "inquiry" list that appears on your credit report.
false
It is against the law for your potential employer to use your credit score for employment considerations
false
Most credit cards offer a 31- to 35-day grace period from the date of the bill to make payments
false
Most credit users are more interested in free benefits than low APRs
false
Non-profit Credit Counselors should be avoided due to their high fees
false
One of the unpleasant secrets of using your credit card for a cash advance is that the APR on the cash advance is typically lower than the APR for normal purchases.
false
Only a Credit Repair company can remove inaccurate data from your credit report
false
The average daily balance method calculated interest payments based on the ending balance of the previous period
false
There is no cash advance fee when you use your credit card at an ATM machine.
false
To a credit user, the perks and benefits are the most important determinant when choosing a credit card
false
Using your credit cards for cash advances is a relatively cheap way to borrow money because you usually do not start paying interest until the next billing period.
false
Your credit score may affect how much you pay for health insurance.
false
Michael has a credit limit and a balance of $3,000 on his Visa card. His car broke down, he charged the $500 repairs to his Visa which he knows put him over his credit limit for the month. His payment is due on the 20th so he made sure that he had his $750 payment to the post office on the 20th. Most likely, what penalties or fees, if any, will he incur?
he will likely incur the penalty APR, as well as an over-the-limit fee and a late fee-because VISA has to receive his payment in its office by the 20th, not have it postmarked by the 20th
________ occurs when someone, without your knowledge or consent, uses your name, address, Social Security number, bank or credit card account number, or other identifying information to commit fraud or other crimes.
identity theft
For the convenience credit card user the interest rate is
irrelevant
Which of the following statements is most correct regarding a secured credit card?
it is useful to someone who has bad credit or no credit established yet
When you use a credit card at a store, the store is generally charged a fee ranging from 1.5% to 5%. What is this fee called?
merchant discount fee
The ________ is the percentage of the credit card sale that the retailer owes to the credit card company.
merchant's discount fee
Jessica always thought the grace-period feature of her credit card was a wonderful idea because her charges were interest-free during the grace period. After taking Dr. Art Keown's personal finance course, she learned this startling truth about grace periods.
most banks eliminate their grace period on new purchases if you don't pay your balance in full
Credit scoring is
not a flawless method of determining creditworthiness
One of the unpleasant secrets about using your credit card for a cash advance is that
payments do not apply to cash advance balances unless the balance for regular credit purchases is zero
The ________ is the interest rate you pay on your balance if you don't make your minimum payments on time.
penalty rate
Credit cards are a form of ________ credit.
revolving
Which of the following is a disadvantage of credit cards?
the finance charge that accrues on the account if not paid off in full each month
Which of the following is an advantage of credit cards?
they allow the consumer the ability to rent cars and make online reservations
Sometimes retailers will give up to a 5% discount if you pay cash for their products instead of using your credit card. Why?
they are saving on the merchants discounts fee so they pass the savings on to you
Research has determined that undergraduate college students tend to behave in similar manners with regards to their credit card usage. As noted in Chapter 6, which of the following behaviors are indicative of undergraduate students' credit card behaviors?
they make more than their minimum payment each month but still tend to carry a balance on their cards
A convenience user doesn't really care what the APY is on their credit cards
true
A convenience user of credit cards is someone who pays off the credit card balance each month
true
A credit bureau is a private organization that maintains credit info. on individuals, which it allows subscribers to access for a fee
true
A secured credit card is a good tool to help establish credit.
true
A single-purpose card is a credit card that can be used only at a specific company
true
According to a Nellie Mae study, 93 percent of graduate students would have liked more information on financial management topics before they started school and would like financial management education made available to them now.
true
Credit card companies send out a whopping 6 billion credit card offers annually-roughly 60 offers per U.S. household!
true
Crystal tried to use her Macy's credit card at Target but was unsuccessful because her Macy's credit card is a single-purpose card and can only be used at Macy's.
true
Due to compounding frequency, the actual interest rate or APY you pay is higher than the advertised interest rate or APR.
true
Financially savvy people take advantage of the grace period on major purchases and pay the balance off in full; thus avoiding finance charges
true
For the average consumer there is usually a set limit on open or revolving credit accounts
true
Late library fines and unpaid parking tickets can hurt your credit score
true
One of the more important factors in determining your credit score is the length of your credit history.
true
Over 70% of the 25 biggest credit card issuers do not charge annual fees
true
Taking a cash advance on your credit card for daily living expenses may not be a wise financial decision because interest begins on the cash advance balance amount immediately
true
Your credit card company is required to send you a notice 45 days before they can increase your interest rate, change certain fees (such as annual fees, cash-advance fees, and late fees), or make other significant changes to the terms of your card.
true
When you withdraw cash from an ATM using your credit card
you being paying interest immediately
One of the 5 Cs of credit is capacity. Most likely, what information would potential creditors consider in evaluating your capacity?
your leverage and liquidity ratios
Your credit card company cannot increase your rate for the first 12 months after you open an account unless
your card's introductory rate expires and your rate reverts to the "go-to" rate the company disclosed when you got the card.
