Personal Finance- Chapters 7 and 8
What are some factors to consider when using social media with respect to identity theft? Social media
can be a valuable source of personal information for thieves. People often post enough personal information to enable someone to obtain credit in your name and even access your bank account.
A reputable credit counseling organization:
can help you establish a plan to repay your debt and also help you establish a budget so that you can live within your means.
Prepaid cards are:
cards that can be purchased that are electronically loaded with a specific amount of cash. The cards can then be used just like a credit card until the balance is depleted.
Getting a cash advance on your credit card is a costly source of funds because:
convenience checks also charge transaction fees that are 1% or more of the total amount borrowed. there is no grace period for cash advances and interest begins accruing immediately. there are high transaction fees typically assessed at the time of withdrawal.
A common range of interest rates on credit cards is:
. between 15 to 20%.
negative credit information stays on the record for __ years
7
skimming
copy the information contained in the magnetic stripe on the credit or debit card and use it to create fake cards
If you discover an error, you should
dispute any errors in writing within a 60-day period. However, if you suspect fraud call the credit card issuer immediately and have them issue a new credit card.
If you discover an error, you should:
dispute any errors in writing within a 60-day period. However, if you suspect fraud call the credit card issuer immediately and have them issue a new credit card.
The Consumer Financial Protection Bureau (CFPB):
enforces consumer finance laws in order to ensure that consumers who need financial services are treated fairly.
This review is beneficial because it:
ensures that the report contains only correct information
Why should you be careful about checking your credit score on one of the numerous "free" sites?
Free sites often receive commissions from vendors for providing this service. You may get inundated with credit card offers or be pressured to sign up for other expensive services.
Why should some people use cash to make purchases instead of credit?
Using a credit card instead of cash causes some people to overspend. These people are better off using cash for most purchases.
Margie has had a tough month. First, she had dental work that cost $521. Next, she had her car transmission rebuilt, which cost $1,258. She put both of these unexpected expenses on her credit card. If she does not pay her credit card balance when due, she will be charged 22% interest. Margie has $13,854 in a money market account that pays 4% interest. How much interest would she pay (annualized) if she does not pay off her credit card balance? How much interest will she lose if she writes the check out of her money market account? Should she pay off the balance?Margie has had a tough month. First, she had dental work that cost $521. Next, she had her car transmission rebuilt, which cost $1,258. She put both of these unexpected expenses on her credit card. If she does not pay her credit card balance when due, she will be charged 22% interest. Margie has $13,854 in a money market account that pays 4% interest. How much interest would she pay (annualized) if she does not pay off her credit card balance? How much interest will she lose if she writes the check out of her money market account? Should she pay off the balance?
if she does not pay off her credit card balance, the amount of interest would she pay (annualized) would be 521 + 1258 x .22= $391.38 If she writes the check out of her money market account, the amount of interest she will lose is 521 + 1258 x .04= $71.16 she should pay off the balance
Is identity theft only perpetrated to acquire money, goods, or services? Identify theft:
is used to acquire money, goods, or services, and also to establish fraudulent identities.
Charging large amounts on your credit cards can affect your overall financial planning by:
lowering your liquidity level and restricting you from getting other financing.
Which of the following is not one of the six major areas of information that may be included on your credit report?
marital status
The three major credit bureaus:
may produce a different score because the information each bureau receives on the credit applicant may vary.
The Credit CARD Act mandated that cardholders under the age of 21
must provide proof of income or have an adult cosign indicating responsibility for the debt in the event of non-payment. Credit card issuers can no longer offer gifts to entice younger people to apply for credit.
pretexting
obtain personal information under false pretenses by posing as a survey taker
One step for using credit cards wisely is to:
pay credit cards before investing money
You increase your credit limit by:
paying credit card bills on time.
You can use a grace period to your advantage by making:
purchases earlier in the billing cycle, giving you a longer period of free credit.
You can improve your credit score by:
reducing the debt load. B. becoming current with payments. C. making at least the minimum payments.
One way to reduce an excessive credit card balance is to:
sell some of your assets for cash to pay off credit
VantageScore uses:
similar factors to determine creditworthiness but the weightings may be different. In general both FICO and VantageScore should generate similar ratings of overall creditworthiness.
Tactics used by identity thieves are: shoulder surfing
stand over the shoulder of the victim and read the credit card number.
The Equal Credit Opportunity Act prohibits that credit be denied due to all of the following reasons except:
state of residence
You just borrowed $5,000 and are charged a simple interest rate of 9%. How much interest do you pay each year?
the amount of interest you pay each year is 5000 x .09= $450
How does the interest rate affect your credit payments?
the higher the interest rate, the higher the credit payment.
A disadvantage to using a credit card is that:
the interest rates are high if you do not pay off the balance when due.
What is a credit limit? How can you increase your credit limit? A credit limit is:
the maximum amount of credit you are allowed.
The annual percentage rate (APR) is:
the simple interest rate charged after adding all fees.
A grace period is:
the time between your statement closing and the due date on the bill.
what is a disadvantage of using credit
the use of credit enables borrowers to buy on impulse
A disadvantage to using a credit counseling organization is:
there are some unscrupulous credit counseling firms that charge high fees and provide very little help with your current financial problems.
What are three advantages of using a credit card? Can you think of any disadvantages? One advantage of using a credit card is that:
they provide free financing until the statement arrives.
You should review your credit report from each of the three major credit bureaus at least
twice a year
Which of the following is not a step you can take to safeguard your personal information?
use an alias for personal business
Identity theft occurs when any individual:
uses your personal identifying information for personal gain without your permission.
A finance charge is applied to credit purchases:
when a bill is not paid in full before the due date
If you are denied credit, do you have the right to know the reason for the denial?
Yes, the applicant must be notified with the reason within 30 days of the denial of a credit application.
What is your credit history? How does it impact your ability to borrow money? your credit history is;
a record of how you have used credit in the past. It will contain information on any loans you have obtained and whether you made timely payments.
phishing
a type of pretexting
You should review your credit card statement before paying the bill:
for accuracy. You might discover a math error or even fraudulent use of your card.
You should review your credit card statement before paying the bill:
for accuracy. You might discover a math error or even fraudulent use of your card.
dumpster diving
go through the trash and take personal information that contains identifying numbers
How will the new EMV technology help reduce identity theft? The new EMV cards:
have a computer chip that is used to authenticate transactions. The computer chip creates a unique identifier for each transaction and prevents identity thieves from being able to use your card information for other purchases.
The new EMV cards:
have a computer chip that is used to authenticate transactions. The computer chip creates a unique identifier for each transaction and prevents identity thieves from being able to use your card information for other purchases.
Credit cards are a convenience and you should not use them unless you
have the cash to cover the payment.
Credit cards are a convenience and you should not use them unless you:
have the cash to cover the payment.
Credit card interest rates tend to be
higher than rates on other debt.
Credit card interest rates tend to be:
higher than rates on other debt.
Why should you self-impose a tight credit limit?
A tight credit limit will assure you have the cash for other expenses and to invest
Why should you self-impose a tight credit limit?
A tight credit limit will assure you have the cash for other expenses and to invest.
Explain why it is not advisable to use credit repair services.
C. Credit repair services are very costly and do nothing that you cannot do for yourself.
What are some common types of credit?
Common types of credit include credit cards, auto loans, mortgages, or other loans.
The three major credit bureaus are:
Equifax, Experian, and Trans Union.
They score your credit rating based on:
FICO for credit scoring, which is based on payment history and levels of debt.
Jarrod has narrowed his choice to two credit cards that may meet his needs. Card A has an APR of 24%. Card B has an APR of 17%, but also charges a $18 annual fee. Jarrod will not pay off his balance each month, but will carry a balance forward of about $283 each month. Which credit card should he choose?
His total annual expenses for Card A will be 283 x .24= $67.92 His total annual expenses for Card B will be 283 x .17 + 18.00= $66.11 Jarrod should choose Card B
explain how to correct a mistake you discovered on your credit report.
Identify the specific information that you believe is incorrect. Include copies of any receipts you can use to support your claim. For example, if the credit report indicates that you did not pay a specific bill, include a copy of the receipt that proves you paid the bill. Send a letter by certified mail to the credit bureau with the mistake. The credit bureau is required to investigate your claim within 30 days. . Explain why the information is incorrect.
Eileen is a college student who consistently uses her credit card as a source of funds. She has maxed out her credit card at the $4,700 limit. Eileen does not plan on increasing her credit card balance any further, but has already been declined for a car loan on a badly needed vehicle due to her existing credit card debt. Her credit card charges her 22% annually on outstanding balances. If Eileen does not reduce her credit card debt, how much will she pay annually to her credit card company?
If Eileen does not reduce her credit card debt, the amount she will pay annually to her credit card company is 4700 x .22= $1034
Paul's credit card closes on the 3rd of the month, and his payment is due on the 30th. If Paul purchases a stereo for $300 on June 12th, how many interest-free days will he have? When will he have to pay for the stereo in full in order to avoid finance charges? (Hint: Assume that Paul pays off his credit card each month.)
If Paul purchases a stereo for $300 on June 12th, the number of interest-free days he will have is 30 + 18= 48 When will he have to pay for the stereo in full in order to avoid finance charges? Paul will have to pay for the stereo by July 30th to avoid finance charges.
How does it impact your ability to borrow money?
Individuals with good credit histories can borrow money easier and at more favorable interest rates.
How does it differ from a secured credit card?
Prepaid cards are a form of electronic cash and are not credit per se.
What are the three major impacts of the Credit CARD Act?
The Credit CARD Act had a major impact on cardholders and the credit card companies. F. The Credit CARD Act ensures more complete disclosure of information so that cardholders understand the conditions. G. The Credit CARD Act limits the frequency with which credit card companies can increase their interest rates. the Credit CARD Act reduces the fees paid by cardholders
Why is paying your credit card balance in full so important?
You can avoid interest charges.
Chen recently graduated from college and accepted a job in a new city. Furnishing his apartment has proven more costly than he anticipated. To enable him with making purchases, he applied for and received a credit card with a $5,000 credit limit. Chen planned to pay off the balance over six months. Six months later Chen finds that other expenses incurred in starting a new career have restricted him to making only minimum payments. Not only that, he has borrowed on his card to the full extent of its credit limit. Upon returning from work today, Chen finds a letter from the credit card company offering to increase his limit to $10,000 because he has been a good customer and has not missed a payment. a. Discuss the ethics of credit card companies that offer to increase credit limits to individuals who make only minimum payments and who have maxed out their card. b. Should Chen accept the credit card company's offer? c. How could Chen use a balance transfer card to help solve his problem?
a. Credit card companies are in business to earn a return for their shareholders, but have a responsibility to their customers by not enticing them to become overextended. b. Should Chen accept the credit card company's offer? No, since he is not properly managing his current credit usage. c. How could Chen use a balance transfer card to help solve his problem? Chen could transfer his current balance to a balance transfer card, which will allow him to save money on interest, as these cards typically have an introductory rate of 0%, or a very low rate, for a specific period of time. Chen will want to pay off the balance in full during the introductory period because the interest rate will rise to a higher level once the introductory period is over.
Rita is the office manager of a three-doctor practice. Her brother, Juan, a recent college graduate, recently started working for a large insurance company that specializes in health insurance. In attempting to build a client base, Juan asks Rita if she will provide him with a list of all the doctors' patients who do not currently have health insurance. Wishing to help her brother be successful in his new job, she runs the list, which includes names, addresses, telephone numbers, Social Security numbers, and brief medical histories. a. Is Rita acting ethically? Explain. b. What problems could Rita be creating for the practice's patients?
a. Is Rita acting ethically? No, her behavior violates HIPAA. b. What problems could Rita be creating for the practice's patients? Her patients are exposed to the possibility of identity theft.
Factors to consider when comparing credit cards are:
acceptance by merchants, interest rate, annual fee and maximum limit.
Simple interest is the percentage you would pay for credit on:
an annual basis that excludes fees.
Some common credit card fees are
annual fee, late fee, balance transfer fee, and cash advance fee.