Personal Finance Chapter 6

Rank the following items in the order they should be completed to dispute a billing error. - Write a letter of complaint - Purchase placed in dispute - Receive an acknowledgment from the credit company - Purchase removed or credit issued to account

1. Write a letter of complaint 2. Purchase placed in dispute 3. Receive an acknowledgment from the credit company 4. Purchase removed or credit issued to account

Which of the following is the ideal, not maximum, debt payment-to-income ratio? - 17.5% - 15% - 20% - 25%

15%

Open-End Credit

A line of credit in which loans are made on a continuous basis and the borrower is billed periodically for at least partial payment.

Home Equity Loan

A loan based on the current market value of a home less the amount still owed on the mortgage.

Interest

A periodic charge for the use of credit.

Collateral

A valuable asset that is pledged to ensure loan payments.

Which of the following should you consider when determining whether you can afford a loan? - funds remaining for other expenses - how badly you want the item - your monthly pay - your monthly expenses

funds remaining for other expenses; your monthly pay; your monthly expenses

Credit allows you to buy clothes today and pay for them in the ____.

future

What are the three types of closed-end credit? - installment series credit - installment cash credit - single lump-sum credit - single time-series credit - installment sales credit

installment cash credit; single lump-sum credit; installment sales credit

The most important thing you can do to improve your credit score is to pay your bills on ___.

time

The Fair Credit Billing Act's underlining purpose is: - to get the lowest possible interest rate for its clients - to collect the outstanding debt consumers owe creditors - to protect consumer credit ratings - to protect the credit agencies from consumer complaints

to protect consumer credit ratings

Which of the following is part of the billing dispute process? - writing a letter to the creditor - writing a letter to the retailer to discuss return options - calling your friend who made the purchases to discuss repayment options - calling the credit company and yelling at them

writing a letter to the creditor

Credit

An arrangement to receive cash, goods, or services now and pay for them in the future.

Equal Credit Opportunity Act(ECOA)

Bans discrimination in the extension of credit on the basis of race, color, age, sex, marital status, and other factors.

What does the Fair Credit Billing Act (FCBA) do? - It protects consumers from discrimination when applying for a loan. - It corrects mistakes and returns defective goods on behalf of consumer. - It protects consumers with billing mistakes and provides assistance in avoiding payment for defective merchandise. - It allows consumers access to credit card company files and tax documents. - It allows consumers options to design the terms of their loans and decide their own payback option.

It protects consumers with billing mistakes and provides assistance in avoiding payment for defective merchandise.

Debt Payments-to-Income Ratio

Monthly Debt Payments/Net Monthly Income

Closed-End Credit

One-time loans that the borrower pays back in a specified period of time and in payments of equal amounts.

Fair Credit Reporting Act

Regulates the use of credit reports, requires the deletion of obsolete information, and gives consumers access to their files and the right to have erroneous data corrected.

Fair Credit Billing Act(FCBA

Sets procedures for promptly correcting billing mistakes, refusing to make credit card payments on defective goods, and promptly crediting payments.

How does the Secret Service fight identity theft? - The Secret Service tries to catch the thief in the crime by posing as specific persons who lose their identity. - The Secret Service uses intelligence to locate thieves in other countries. - The Secret Service provides a hotline for all identity theft victims. - The Secret Service typically focuses on financial fraud cases with large amounts of money involved.

The Secret Service typically focuses on financial fraud cases with large amounts of money involved.

Capital

The borrower's assets or net worth.

Character

The borrower's attitude toward his or her credit obligations.

Capacity

The borrower's financial ability to meet credit obligations.

Line of Credit

The dollar amount, which may or may not be borrowed, that a lender makes available to a borrower.

Consumer Credit

The use of credit for personal needs(except a home mortgage).

Debt-to-Equity Ratio

Total Liabilities/Net Worth

True or false: A credit bureau is a reporting agency that collects credit and other information about consumers.

True

True or false: A reliable way to see if you can afford a loan is to determine what you will give up to make the monthly loan payment.

True

True or false: Credit is defined as an arrangement to receive cash, goods, or services now with payment in the future.

True

True or false: People who have a strong willingness and ability to repay debts generally have the highest credit ratings.

True

True or false: Using credit to purchase goods and services may allow consumers to be more efficient or more productive.

True

The ___ in Lending Act prohibits creditors from giving inaccurate information or denying consumers the right to cancel credit accounts.

Truth

What is the proper way to correct a billing error? - Call the credit reporting agency to fix error. - Call the Better Business Bureau. - Write a clear letter reporting the error to the credit agency. - Contact FCBA to fix the billing error.

Write a clear letter reporting the error to the credit agency.

What are the factors that a creditor cannot use to deny a person credit? - age - color - income - marital status - race - credit rating

age; color; marital status; race

Typically, qualified cosigners: - are able to pay loan payments. - will not pay the loan payments. - have a poor credit history. - have many addresses.

are able to pay loan payments

The law that protects consumers by setting standards for correcting billing mistakes and allowing customers to avoid paying for defective merchandise is called the ___. - Personal Credit Requirement Act - Fair Credit Buying Act - Personal Credit Buying Act - Fair Credit Billing Act

Fair Credit Billing Act

True or false: If you find a problem in your bill, you should notify the credit bureau in writing within 60 days.

False

The Act that prohibits creditors from giving inaccurate information or denying consumers the right to cancel credit accounts is: - the Consumer Safeguard Act. - the Consumer Protection Act. - the Truth in Lending Act. - the Consumer Advocate Policy.

the Truth in Lending Act

When referring to credit, character means: - the borrower's attitude toward the bank or lending firm. - the borrower's attitude toward credit obligations. - the bank's willingness to lend credit to this individual.

the borrower's attitude toward the bank or lending firm

Conditions

A valuable asset that is pledged to ensure loan payments.

Who can a victim of identity theft call to network with other victims? - the Privacy Rights Clearinghouse - the bank - the credit reporting agencies - the Secret Service - the identity theft hotline

the Privacy Rights Clearinghouse

Who can a victim of identity theft call to network with other victims? - the Secret Service - the identity theft hotline - the bank - the Privacy Rights Clearinghouse - the credit reporting agencies

the Privacy Rights Clearinghouse

Credit Card Accountability, Responsibility, and Disclosure Act

Places new restrictions on credit card lending and eliminates certain fees.

How does the Fair Credit Billing Act protect consumer credit ratings? - By allowing consumers to decrease the total debt of their credit and keep the merchandise - By allowing the consumer to create and establish their own credit score so they do not have to pay as much interest - By allowing consumers to challenge charges that are false and avoid having delinquent charges added to their credit history

By allowing consumers to challenge charges that are false and avoid having delinquent charges added to their credit history

Five C's of Credit

Character, Capacity, Capital, Collateral, Conditions.

Which of the following is the best description of the importance of consumer credit in the United States? - Consumer credit is insignificant in the US economy - Consumer credit is a major force in the US economy - Consumer credit is a part of the US economy, but is not a major force - Consumer credit is relatively unimportant in the US economy

Consumer credit is a major force in the US economy

Which of the following is the main advantage of credit? - Credit allows people to purchase items, but not if funds are low. - Credit allows goods and services to be purchased and paid for now. - Credit allows you to enjoy goods and services now and pay later. - Credit allows consumers not to worry about their purchases.

Credit allows you to enjoy goods and services now and pay later.

Debit Card

Electronically subtracts the amount of a purchase from the buyer's account at the moment the purchase is made.

When cosigners sign their loans, they: - are stating that they are able to pay for the loan if required. - are stating that they will pay the loan only after being sued. - are unable to pay the loan if needed, but will do everything they can to pay.

are stating that they are able to pay for the loan if required.

To improve your credit score, it is important to: - increase the amount of credit outstanding. - avoid applying for new credit cards. - pay your bills on time. - understand the computation of outstanding debt.

avoid applying for new credit cards; pay your bills on time; understand the computation of outstanding debt.

Which of the following is not a valid reason for using credit? - borrowing for everyday expenses - medical emergency - college education - buying a car to travel to work

borrowing for everyday expenses

Installment cash credit is a form of what kind of credit? - closed-end credit - balanced credit - true credit - open-end credit

closed-end credit

Economists now recognize ___ ___ as a major force in the U.S. economy.

consumer credit

The Fair Credit Billing Act provides that you may withhold payment on damaged or defective goods or poor services you have purchased with a credit card as long as you have: - given the merchant a bad Yelp review. - called the credit reporting agencies to report the problem. - written letters to the merchant complaining about the product. - made a sincere attempt to resolve the problem with the merchant.

made a sincere attempt to resolve the problem with the merchant.

Closed-end loans are ___ loans repaid within a(n) ___ time frame with equal payments.

one-time; specific

To calculate the debt payments to income ratio: - debit subtracted from equity is divided by net income. - total monthly debt payments (excluding home mortgage) are divided by net monthly income. - total liabilities are multiplied by the consumer's net income. - net worth is divided by the consumer's total liabilities.

total monthly debt payments (excluding home mortgage) are divided by net monthly income.

Revolving Check Credit

A prearranged loan from a bank for a specified amount; also called a bank line of credit.

Credit Bureaus

A reporting agency that assembles credit and other information about consumers; also called Consumer Reporting Agencies(CRAs).

Closed-end credit is paying back a loan: - over an unspecified amount of time. - over several payments with a partial payment agreement. - in a specified period of time and in payments of specified amounts.

in a specified period of time and in payments of specified amounts.

What are some disadvantages of credit? - FICO credit scores - Future income may decrease - Allows you to buy now, pay later - The temptation to overspend

Future income may decrease; the temptation to overspend

Consumer Credit Reporting Reform Act

Places the burden of proof for accurate credit information on the credit reporting agency.

If you have a complaint about a business while dealing with identity theft issues, you can file a complaint with: - the Federal Trade Commission. - the Social Security Administration. - the Privacy Rights Clearinghouse. - the Secret Service.

the Federal Trade Commission

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 used by a business is called consumer credit. - Credit involves paying now for future satisfaction. - Consumer credit refers to the use of credit for buying a house.

Credit is an arrangement to receive cash or goods or service now and pay for them later.

True or false: When suing a creditor, you can sue for actual damages and $15,000 in punitive damages.

False($10,000)

True or false: When suing a creditor, you can sue for actual damages and $15,000 in punitive damages.

False(you can only claim $10,000 in punitive damages)

What is the procedure under consumer credit laws when denial of credit is discriminatory? - Make threatening phone calls to the creditor. - Sue the creditor. - Make the creditor aware of your understanding of the law. - Report the creditor to the Better Business Bureau. - File a complaint with the government.

Sue the creditor; make the creditor aware of your understanding of the law; file a complaint with the government.

True or false: The ECOA covers your mortgage application and bans discrimination based on race, color, age, sex, marital status, national origin, and several other factors.

True

What is a credit bureau? - a reporting agency that collects information on how promptly people and businesses pay their bills - a reporting agency that collects information to provide to future employers only - a reporting agency that tracks your dining preferences - a reporting agency that tells consumers the exact method to increase their credit score

a reporting agency that collects information on how promptly people and businesses pay their bills

Why should you care how to use credit? - You don't have to worry about misusing credit because you can always pay it off with your income and increase your credit limit. - If you misuse credit, you will pay for it with future income, and it could take many years to pay off the debt. - Credit is designed to be available for all consumers and, thus, will be available to all that need to use it.

If you misuse credit, you will pay for it with future income, and it could take many years to pay off the debt.

If you purchase a new but defective item that the business will not accept as a return, what does the FCBA require? - The credit card company is not required to handle these issues. - The credit card company will work with you and the business to fix the item. - The credit card company will allow you to withhold payment on such an item because it is defective. - The credit card company must refund your item and call the seller to check on the process that manufactured the defective part.

The credit card company will allow you to withhold payment on such an item because it is defective.