QUIZZES PERSONAL FINANCE KAPOOR 14e CHAPTER 6

What can you do if your credit application is denied?

>Get copies of your credit report and make sure the information in them is correct. >Always pay your bills on time. >Understand how your credit score is determined. >Learn the legal steps to take to improve your credit report. >Beware of credit repair scams.

What happens to your credit rating during the billing dispute?

A creditor may not threaten your credit rating while you are resolving a billing dispute. And until your complaint has been answered, the creditor may not take any action to collect the disputed amount.

What is a debit card?

A debit card electronically subtracts money from your savings or checking account to pay for goods and services at the time of purchase.

What can you do to build and maintain your credit rating?

A good credit rating is a valuable asset that should be nurtured and protected. If you want a good rating, you must use credit with discretion; limit your borrowing to your capacity to repay and live up to the terms of your contracts. The quality of your credit rating is entirely up to you.

What are the advantages and disadvantages of credit?

Advantages of using credit are: purchasing goods and services when they are needed and paying for them gradually, meeting financial emergencies, achieving convenience in shopping, establishing a credit rating, making forced savings, and employing credit as leverage. Disadvantages are: credit costs money, encourages impulse buying and overspending, and ties up future income. Furthermore, credit misuse can create serious long-term financial difficulties.

Why is consumer credit important to our economy?

All economists now recognize consumer credit as a major force in the American economy. Any forecast or evaluation of the economy includes consumer spending trends and consumer credit as a sustaining force. To paraphrase an old political expression, as the consumer goes, so goes the U.S. economy.

What are the five Cs of credit?

Character, capacity, capital, collateral, and conditions.

What are the two main types of consumer credit?

Closed-end and open-end are two types of consumer credit. With closed-end (or installment-credit), the borrower pays back a one-time loan in a specific number of payments in a specific period of time. With open-end credit, or revolving credit, the borrower is permitted to take loans on a continuous basis and is billed for partial payments periodically.

What is consumer credit?

Consumer credit refers to the use of credit for personal needs (except a home mortgage) by individuals and families.

What can you do if your identity is stolen?

Contact the fraud departments of each of the three major credit bureaus, contact your creditors, and file a police report.

What federal laws protect you if you have a complaint regarding consumer credit?

Exhibit 6-10 summarizes Federal Consumer Credit laws: The Truth in Lending Act, the Fair Credit Reporting Act, the Fair Credit Billing Act, the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act, the Consumer Credit Reporting Reform Act, the Fair and Accurate Credit Transactions Act, and the Credit Card Accountability, Responsibility, and Disclosure Act.

What are the valid uses and misuses of credit?

Financing a Corvette on credit when a Ford Escort is all your budget allows. Using credit cards to buy frivolous goods and services. Purchasing nonessential products on an impulse. Valid reasons for using credit are: a medical emergency; need for a car; and buying an item now for less money than it will cost later.

What must you do to protect your rights if a billing error occurs?

First, notify the creditor in writing within 60 days after the bill was mailed. State the suspected amount of the error on the item you want explained. Then pay all the parts of the bill that are not in dispute.

What is a home equity loan?

It is a loan that is backed by the equity of a home. The interest rate is typically lower than on a credit card or other unsecured debt. However, if a home equity loan is not repaid, you could potentially lose ownership of your home.

What is the Equal Credit Opportunity Act?

Prohibits creditors from discriminating against potential debtors on basis of selected attributes -affects consumer and commercial credit -sex, marital status, race, color, age, origin, and religion -must notify applicant within 30 days if credit will be extended Equal Credit Opportunity Act (ECOA) is a law that says that lending decisions cannot be made on the basis of race, color, age, sex, marital status, and certain other factors, and that you have a right to know the reason why you are denied credit when that occurs.

What is the Fair Credit Billing Act?

Protects consumers against inaccurate and unfair credit billing and credit card practices and provides consumers with a mechanism for addressing billing errors The FCBA sets procedures for promptly correcting billing mistakes, for refusing to make credit card or revolving credit payments on defective goods, and for promptly crediting your payments.

What is the Fair Credit Reporting Act?

The Fair Credit Reporting Act gives you the right to know what your credit file contains. Erroneous information must be corrected to your satisfaction; if not, you may enter your version. privacy of background information and ensures that information supplied is accurate

What are the general rules of measuring credit capacity? What are the ratios used to calculate / measure credit capacity?

Two general rules for measuring credit capacity are: debt payments-to-income ratio and debt-to-equity ratio. Debt payments-to-income ratio is calculated by dividing your monthly debit payments by your net monthly income. The debt-to-equity ratio is calculated by dividing your total liabilities by your net worth.

What are your legal remedies if a credit reporting agency engages in unfair reporting practices?

Under the Fair Credit Reporting Act, you can sue the agency. If the agency or the user is found guilty, you may be awarded actual damages, court costs, and attorney's fees. In case of willful noncompliance, punitive damages maybe allowed by the court.

How do you correct erroneous information in your credit file?

When you notify the credit bureau that you dispute the accuracy of information, it must reinvestigate and modify or remove inaccurate data. If reinvestigation does not resolve the dispute to your satisfaction; you may place a statement of 100 words or less in your file, explaining why you think the record is inaccurate.

What can happen if you cosign a loan?

You may end up paying the loan yourself. Despite the risks, there may be times when you decide to cosign a loan for a friend or a relative. Before you cosign, make sure you know what cosigning involves. For example, be sure you can afford to pay the loan. If the borrower defaults, you could damage your credit rating, and you could lose the property you pledge.

What are your rights under the consumer credit laws?

a. Complain to the creditor. Let the creditor know you are aware of the law. b. File a complaint with the government. You can report any violations to the appropriate enforcement agency. c. If all else fails, sue the creditor. You have the right to bring a case in a federal district court. A private attorney can advise you on how to proceed.