Personal Finance Chapter 5
Which of the following statements is true?
Credit is an arrangement to receive cash or goods or service now and pay for them later
Credit is defined as an arrangement to receive cash, goods or services now with payment in the future
True
The Consumer Financial Protection Bureau has a website for registering complaints regarding credit card situations
True
The FCBA is a major reason that consumers should buy high dollar items with a credit card rather than a debit card
True
When a complaint is filed under the Fair Credit Billing Act, the creditor must acknowledge your letter within 30 days
True
You can receive a free credit report annually from all three credit agencies
True
Which of the following obligations are not discharged in a Chapter 7 bankruptcy?
child support alimony certain taxes fines
Consumer credit dates back to ________ times
colonial
When creditworthiness is being determined, creditors look for which of the following?
total debt net income employment history
Family members may only charge interest they would have earned on the money if they had deposited it in a _______ account
savings
Which of the following statements is not true?
Bankruptcy courts treat gift cards as secured debt
How does the Fair Credit Billing Act protect consumer credit ratings?
By allowing consumers to challenge charges that are false and avoid having delinquent charges added to their credit history
Why should you avoid sharing sensitive personal information with strangers?
Strangers can take this information and purchase items in your name
Banks prefer customers with high credit scores
True
A borrower's assets that exceed liabilities is called:
capital
Economists now recognize ___________ ____________ as a major force in the U.S. economy
consumer credit
Long-term financing is more costly than short-term financing because of higher _______ costs
interest
Which of the following are good deterrents of identity theft?
keeping checks in safe place shredding documents before throwing them away
Purchasing equipment on credit now is using credit now to pay _______
later
Which of the following situations will credit provide an opportunity for a more efficient and productive life?
loan for business operations
The definition of open-end credit is:
loans made on a continuous basis and billed periodically for partial payment
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(n) __________ ended type of credit
open
Examples of open-end credit are:
overdraft protection using a bank credit card department store credit card
A good way to build a credit score is to
pay bills when due
The definition of consumer credit is the use of credit for
personal needs, excluding a home mortgage
The five Cs refer to:
policies that help determine who will receive credit
Which of the following is not a disadvantage of using credit?
responsible use of credit can lead to stability
What are techniques for managing your credit history?
review monthly bank and credit card statements look for errors and report them immediately check your credit report annually
The two main activities of the CCCS are
teaching families how to avoid heavy debt burdens in the future helping families with debt problems by helping them manage debts
What are the best reasons to maintain good credit history?
you are less likely to be denied credit you will have a good FICO score
Which of the following is not a warming sign of debt problems?
you pay your monthly credit card statement in full
A simple interest declining balance loan has the following terms: 8% annual interest rate, $3,000 loan, 2 payments: one at the end of the first half year and the last payment at the end of the second half year. What would be the amount of these two payments
$1,620 and $1,560
Marley took a $500 cash advance on her credit card and paid it immediately when the bill arrived one month later. The card charge a 3% cash advance fee and has a 21% APR. How much will Marley pay for this cash advance?
$23.75
If you borrow $200 and it cost you $27 in interest with a service charge of $6, what is the finance charge?
$33
Which of the following is not true regarding The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005?
It is easier to file for Chapter 7
Which of the following is not a question to consider before deciding to make a major purchase?
Should I contact the credit card company for more credit?
What would be the interest cost (simple interest) for a $2,000 loan with a 6% rate for a half of a year?
$60
Rank the following items in the order they should be completed to dispute a billing error
1. Write a letter of complaint 2. Pay portion of bill not in dispute 3. Receive an acknowledgement from the credit company 4. Purchase removed or credit issued to account
The maximum debt payment-to-income ration that is acceptable is ______ percent
20
What is a typical grace period for retailers?
20-25 days
How many years does credit history remain on file if you have not declared personal bankruptcy?
7 years
Which of the following is true?
A home equity loan is a loan based on the difference between the current market value and the amount owed on the mortgage
Which of the following items of income and value are protected under a Chapter 7 bankruptcy?
equity in home SS payments and unemployment compensation equity in cars household appliances trade tools
What does "float" mean when referring to credit cards?
the time before the money is needed to be paid
Which of the following is not a valid reason for using credit?
Borrowing for every day expenses
If you purchase a new but defective item that the business will not accept as a return, what does the FCBA say?
The credit card company will allow you to stop payment on such item because it is defective
Which of the following are examples of a prearranged loan for a specified amount of money that is accesses with special checks?
a bank line of credit a revolving check credit
Capacity is the borrower's financial ________ to meet the credit obligations
ability
Capacity is the borrower's financial __________ to meet the credit obligations
ability
If you cannot make a payment on a debt when due, contact the ________ at once to work out a modified payment plan
creditor
The law that protects consumers by setting standards for correcting billing mistakes and allowing customers to avoid paying for defective merchandise is called the ________
Fair Credit Billing Act
Credit cards are not particularly common among consumers
False
The creditor in a Chapter 13 bankruptcy proposes a plan to pay off debts from future earnings over a period of time
False
Which of the following are true about the debt-to-equity ratio?
A ratio of 1 indicates that your consumer debt is about equal to your net worth If you cosign a loan, you will impact your debt-to-equity ratio A debt ratio of 1 indicates that you have probably reached the upper limit of debt obligations
Disadvantages of travel and entertainment cards include:
a requirement for the balance to be paid in full a requirement for the payment to be made within 30 days
Each 1% increase in the _________ rate means a decrease of approximately 1% in the quantity of goods and services you can purchase with a given amount of money
inflation
A closed-end loan from the bank for personal purposes, home improvements, or vacation expenses is considered __________ cash credit
installment
A line of _____ is the maximum amount of funds lent to a consumer
credit
Which of the following is the main advantage of credit?
credit allows you to enjoy goods and services now and pay later
Which of the following statements is NOT true?
Consumer finance companies offer inexpensive loans
Anyone can obtain credit information about you from a credit bureau
False
The first thing a debtor must do in a Chapter 7 bankruptcy is to draw up a petition listing ________ and liabilities for submission to the court
assets
Examples of protecting against credit card fraud are:
be sure your credit card is returned after a purchase notify the credit card company immediately if your card is lost or stolen
What are the five Cs used by lending institutions?
capital to pay back loan character to pay back a loan capacity to pay back the loan conditions that may affect your ability to pay back the loan collateral to pay back loan
A good way to figure out if your identity has been stolen is to:
check your credit report periodically check your credit card statements for errors
An example of ________ -end credit is an automobile loan, whereas an example of _________ -end credit would be a credit card
closed open
The trustee's role in a Chapter 13 bankruptcy involves distributing _________ to creditors
money
Which of the following are advantages of borrowing from a credit union?
personalized service patient with borrowers
If an unauthorized person(s) accesses your credit report, they could:
receive jail time pay a fine
Some credit card holders make the minimum payment to remain in good standing without making progress on reducing the outstanding balance. This is referred to as the minimum monthly payment _____________
trap
What is a credit bureau?
A reporting agency that collects information on how promptly people and businesses pay their bills
One of the 5 Cs of credit is a valuable asset that can be taken to satisfy a loan obligation, which is called
collateral
___________ users typically pay off their balances each month
convenience
When a mistake is made and consumer complains, the Fair Credit Billing Act requires that the creditor must:
correct the mistake in a timely fashion acknowledge the complaint within 30 days
A credit file contains your detailed __________ information
credit
In a straight bankruptcy, many but not all __________ are forgiven
debt
Conditions, one of the five Cs of credit, refers to the general _________ conditions that can affect your ___________ to repay a loan. This is taken directly from the text
economic ability
Which of the following is something that the Equal Credit Opportunity Act designed to do?
ensure that persons are not discriminated against based upon their age and because of their sex and race
What is the process you should follow when identity is stolen?
file a police report contact the fraud departments of each credit bureau contact creditors of all accounts for unauthorized access
Credit allows you to buy clothes today and pay for them in the ________
future
Based upon the definition of consumer credit, which of the following is not credit used for personal needs?
home mortgage
Closed-end credit is paying back a loan:
in a specified period of time and in payments of specified amounts
If you plan to pay off your balance every month, you should look for a credit card that has:
low or no annual fees a grace period
If you decide to use credit, make sure the benefits of _________ now outweigh the costs of credit
purchasing
The Fair Credit Reporting Act of 1971:
regulates the use of credit reports, requires deletion of obsolete information, allows access of their files to consumers
Your FICO score is:
the score of your credit history
A method to confirm that you can pay for the loan is:
to have enough take home pay to cover monthly expenses, the loan payment and other expenses
When making online purchases, you should:
use a secure browser, keep a record of the purchase, and review your statement
What is interest?
A periodic charge for the use of credit
Which of the following factors about a potential borrower can be used by a creditor?
Credit history
Which of the following is true?
Creditors can use same collection methods with cosigner as could be used with the borrower
Which of the following is NOT something that would likely negatively impact your credit score?
Having a handful of credit cards for many years
Which of the following are questions that lenders may ask to determine a potential borrower's CHARACTER?
How long have you lived at your present address? How long have you held your current job? Have you used credit before?
Under the Consumer Credit Reporting Reform Act, what would happen if a Credit Bureau verifies inaccurate information?
If the Credit Bureau is wrong about information, the consumer can sue for actual, possibly punitive damages
Which of the following statements is not true?
If your denial for credit is based on a credit report, you can see your file for a fee
What are the three types of closed-end credit?
Installment cash credit single lump-sum credit installment sales credit
Identify the correct statement about a loan with add-on interest
The interest is calculated on the full amount of the original principal, no matter how frequently the payments are made
Which of the following are the names of credit bureaus?
TransUnion Equifax Experian
Debt-to-equity ratio is calculated by total liabilities divided by net worth
True
Misuse of credit to purchase a home on credit (assuming you cannot pay for it in cash) can result in default, bankruptcy, and loss of creditworthiness
True
Paying for a purchase over a period of time is more costly than paying for them in cash
True
The Fair Debt Collection Practices Act prohibits certain practices by agencies that collect debts for creditors
True
The grace period is the time allowed to pay the balance on a credit card before interest accrues
True
The interest on a home equity loan is tax-deductible, but the proceeds of the loan must be used for major items
True
The trade-off of using credit is it decreases the availability of money to spend in the future
True
A new credit scoring technique that is a collaboration of the three credit reporting companies is:
Vantage Score
Jennie took a five year loan for $10,000. She will make monthly payments on the loan, and her total cost of credit (including fees) is $2,165.84. What is her APR?
8.52%
Which of the following results from improper use of credit
Bankruptcy Default and loss of credit rating
Which of the following is not true?
Finance charge does not include credit-related insurance premiums