Personal Finance Chapter 5

Eric borrows $7920 on January 1 for one year at an interest rate of 12%. Interest is calculated monthly and payments are due at the end of each month, starting January 31. How much interest will Eric owe on the loan for the month of January? Assume that there are 12 equal months in the year.

$79.20.

Carolyn maintains an average monthly balance of $530 in her checking account. If her bank charges $16 per month as a minimum service fee, what would the annual interest rate need to be to just cover the monthly service fee?

36%

Raul has had a credit card since college. Overall, he has managed his credit history well, although he has occasionally made a late payment on his credit card. Given this information, which of the following FICO scores is Raul likely to receive?

640

The difference between a bank and a credit union is as follows:

A credit union depositor is known as a member but a bank depositor is simply a customer.

When Ann was traveling outside the United States, she found the perfect souvenir. Unfortunately, when she went to make the purchase with her debit card, the transaction was denied. This happened because Ann had only $200 in her account, and the souvenir cost $300. Ann was disappointed and regretted having to pass on her purchase. What could Ann have done before her trip to ensure that she could spend more than what was in her account?

Added overdraft protection transfers from her savings account to her checking account.

Which of the following are included in the finance charge for a loan?

All of the answer choices are correct. (Interest charged for the loan, Loan origination fees (the cost of creating the loan), Annual loan account fees)

A credit card

Allows a user to revolve the loan balance from month-to-month.

A digital code on a check that helps facilitate check processing is known as a(n):

Bank Routing Number.

Credit reports are created for individuals when they

Borrow money from a lender that reports loans to credit bureaus or declare bankruptcy.

Assume a college student is having a hard time getting approved for a credit card. What method can the student use to increase the probability of receiving a credit card?

Both ask a parent to co-sign the credit card application and open a secured credit card with a lending institution.

Under current law, which of the following requests is allowed?

Both the Federal Aviation Administration requests your credit report before issuing you a pilot's license and a car dealer requests your credit report before taking you on a test drive.

If you discover that someone has used your debit card fraudulently, you should first:

Call your bank, credit union, or card issuer.

Emily is the type of consumer who pays her bills on time and in full each month. She very rarely allows her credit card balance to revolve from month-to-month. Knowing this about Emily, what features should she look for when selecting a new credit card?

Cash back and other rewards for card usage.

A bank check issued by a financial institution can be purchased by paying the amount of the check plus a service fee is called a(n):

Cashier's check.

To correct inaccurate, fraudulent, or other erroneous information on your credit report, which of the following is the best course of action?

Contact the primary national credit bureaus by writing a letter and notifying them of the inaccurate information.

The maximum amount that can be borrowed using a credit card is known as:

Credit limit.

Of the following options listed, which is the primary source of payment when Americans go shopping?

Debit cards

Which of the following negative financial behaviors will stay on your credit report the longest?

Declaring bankruptcy.

Individuals with low credit scores are more likely to be:

Denied rental/leased housing. Denied employment. Denied professional licenses. All of these answer choices are correct.

All of the following are typical fees associated with the use of a debit card except:

Direct deposit credit fee.

Which of the following statements best describes the relationship between credit scores and credit riskiness of borrowers?

Higher credit scores are associated with lower credit risk.

Which of the following events will trigger the creation of a credit report? I.Declaring bankruptcy. II.Taking out a student loan. III.Borrowing money from a company. IV.Marriage or divorce.

I, II, and III only.

Jorge opened a no-cost checking account at a local bank last month. He was surprised when he was charged several service fees. Under federal law, which of the following service fees is allowed in a no-cost checking account?

Inactive account fee.

Which of the following statements regarding access to individual credit reports is most accurate?

Insurance companies can view a customer's credit report when underwriting insurance policies.

Which of the following terms best represents the money paid to the lender for the use of their money?

Interest.

Latisha is shopping for a car and an auto loan to purchase the car. All of the following statements are true, except:

Latisha should avoid shopping for the lowest auto loan interest rate possible, because multiple credit applications will cause her credit score to go lower, leading to a higher interest rate.

Brackley would like to increase her credit score. If she can only do one of the following, which should she focus on as a way to improve her score?

Make all bill and debt payments on time.

Which of the following information will not be included in a credit report?

Medical history.

How much should you expect to pay to use a debit card that is linked to your checking account?

Nothing

A payment method that has had money loaded onto a card in advance is known as a:

Prepaid card.

Which of the following terms best represents the amount of money that is borrowed, and which must be repaid?

Principal.

Nedra uses her debit card on a daily basis. The last time she used it was the evening before at a restaurant. This morning, she noticed that the card was missing. How long does she have to report the card as lost to have 100% protection against fraudulent use?

She must report the card immediately before any unauthorized withdrawals are made.

What will likely happen if Terry Ann fails to make a payment on her secured credit card?

The bank or credit union may cancel the card. The bank or credit union will deduct the payment directly from Terry Ann's account. The bank or credit union will deduct any fees directly from Terry Ann's account. All of the answer choices are correct.

What should installment loan lenders disclose to credit applicants?

The interest rate (as an APR) and the finance charge (in dollars).

The FICO score has been the standard model for developing credit scores for many years; however, new credit-scoring models are being developed. In relation to this, which of the following statements is true?

The same good credit behaviors, such as on-time payments and low debt-to-credit ratios, will lead to good credit scores regardless of the credit-scoring model.

The three primary national credit bureaus are:

TransUnion, Equifax, and Experian.

Irene has a debit card but rarely uses it. Last night, she determined that her card was lost and had been for sometime. What is Irene's potential maximum liability if someone uses the card without her permission?

Unlimited up to the amount in her account.

Which of the following court and government-related items may appear on a credit report?

Unpaid late fees and fines owed to a local library.

Which of the following statements is true regarding credit cards?

You may pay off a credit card balance at any time without penalty.

A credit reporting bureau, such as Equifax or Transunion, is engaged primary in business to:

compile credit usage information about consumers

All of the following statements regarding credit inquiries are true, except:

when an individual requests his or her own credit report, it is considered a hard inquiry.