Deck 6: Using Credit

Question 1

The purpose of a credit investigation is to evaluate the kind of risk you pose to the lender.

Answer 1

True

Question 2

Lenders use the guideline that a borrower's monthly repayment burden should not be more than 20% of the borrower's take-home income.

Answer 2

True

Question 3

You should review your credit bureau file every year.

Answer 3

True

Question 4

Paying a loan on schedule is one way to build a good credit history.

Question 5

A retail charge card can be accessed by writing checks against demand deposit.

Question 6

The key to creditworthiness is to maintain your debt safety ratio at 50% or above.

Question 7

An individual can be overusing credit even if he or she can afford to make the minimum monthly payments on time.

Question 8

Debit cards work like writing a check.

Question 9

Most families have only one source for consumer credit.

Question 10

Your credit bureau file often includes information about your political and religious affiliations.

Question 11

Credit reports on individual borrowers are provided by credit card issuers.

Question 12

Using credit is the ideal way to meet basic living expenses.

Question 13

Credit cards with very low minimum payment requirements are in the consumers' best interest.

Question 14

The most common method used by lenders to apply finance charges on credit cards is the average daily balance method including new purchases.

Question 15

Always paying cash helps in establishing a high level of creditworthiness.

Question 16

A credit card application requests information that is routinely used to predict creditworthiness.

Question 17

Retail charge cards are cheaper than credit cards provided by financial institutions.

Question 18

For a fee, local credit bureaus can provide credit information to members about prospective borrowers in their community.

Question 19

Credit should not be consistently used for purchasing nondurable goods.

Question 20

Arranging for and fully repaying a small loan helps improve creditworthiness.

Question 21

_____ is a reason that people use credit.

A)Being able to increase disposable income
B)Being able to provide payments for living beyond one's means
C)Being able to afford impulse purchases
D)Greater affordability for a luxurious lifestyle
E)Being able to meet a financial emergency

Question 22

A credit card user's credit rating will be hampered if he or she pays only the minimum monthly payment on a credit card.

Question 23

If you initiated the telephone call, it is okay to give your credit card account number when ordering or purchasing from major catalog houses, airlines, hotels, and so on.

Question 24

It is good to use credit for:

A)buying groceries.
B)dining at a restaurant.
C)buying a car.
D)visiting a tourist destination.
E)paying rent for your home.

Question 25

The majority of persons filing for bankruptcy choose Chapter 7 of the U.S. Bankruptcy Code.

Question 26

Families that have a steady source of income and a reasonable chance to repay debts would choose Chapter 13 rather than Chapter 7 of the U.S. Bankruptcy Code.

Question 27

If your monthly before-tax income is $2,000 and your monthly take-home pay is $1,500, your maximum monthly consumer credit payments should not exceed:

A)$600.
B)$450.
C)$400.
D)$300.
E)$200.

Question 28

Overspending will help you manage your budget effectively.

Question 29

Which of the following is a major reason to use credit?

A)Weekly purchase of food
B)Monthly payment of utility bills
C)Regular payment of small cash outlays
D)Frequent impulse purchases
E)Occasionally for convenience

Question 30

To establish credit, you should first:

A)open savings and checking accounts.
B)use credit extensively.
C)arrange for a small loan.
D)pay cash for all purchases.
E)arrange for a large loan from close relatives.

Question 31

All credit cards have annual fees.

Question 32

Which of the following is the correct formula for calculating the debt safety ratio?

A)Total Monthly Consumer Credit Payments ÷ Monthly Take-Home Pay
B)Monthly Take-Home Pay ÷ Total Monthly Consumer Credit Payments
C)Total Monthly Consumer Credit Payments ÷ Gross Monthly Pay
D)Gross Monthly Pay ÷ Total Monthly Consumer Credit Payments
E)Gross Monthly Pay ÷ Monthly Take-Home Pay

Question 33

Which of the following will lead to a poor credit rating?

A)Opening checking and savings accounts
B)Opening and using a charge account
C)Applying for a long-term loan and occasionally being late with a payment
D)Making payments ahead of schedule
E)Discussing with the lender if you foresee difficulty in making a payment

Question 34

Credit scoring systems are often used by lenders to determine applicants' creditworthiness.

Question 35

A Chapter 7 bankruptcy filing would result in the discharge of most of your debts.

Question 36

The intent of the Wage Earner Plan is to eliminate all of a debtor's obligations.

Question 37

You should not give your credit card account number over the phone to people or organizations who call you.

Question 38

Which of the following is an improper use of credit?

A)Buying a home
B)Buying a short-lived good
C)Spreading payments within a budget
D)Purchasing a big-ticket item
E)Meeting a financial emergency

Question 39

As a percent of take-home pay, monthly consumer credit payments should not exceed:

A)25%.
B)20%.
C)15%.
D)10%.
E)5%.

Question 40

It is necessary to give your Social Security number for identification when using a credit card.

Question 41

Clare's annual gross salary is $36,000, and her after-tax income is $28,800. What is Clare's maximum recommended monthly consumer credit payment?

A)$600
B)$480
C)$450
D)$360
E)$200

Question 42

Which of the following is usually excluded from a monthly credit card statement?

A)The minimum payment
B)The payment due date
C)The type of goods purchased
D)The account activity during the current period
E)The interest rate

Question 43

Which of the following cards is issued as a form of credit by department stores and oil companies?

A)A debit card
B)A student credit card
C)A retail charge card
D)An affinity card
E)A reward card

Question 44

Russ and Lois have a home valued at $96,000 with an outstanding mortgage of $60,000. If their lender is willing to provide a home equity loan of up to 75% of the market value of the home, how much can they borrow using a home equity loan?

A)$0
B)$12,000
C)$27,000
D)$28,000
E)$36,000

Question 45

Which of the following cards provides direct access to your checking account?

A)Retail charge cards
B)Affinity cards
C)Student credit cards
D)Reward cards
E)Bank debit cards

Question 46

With a bank credit card, you can often avoid interest charges if:

A)the account balance is paid in full every month.
B)at least half the account balance is paid every month.
C)the minimum payment is made every month.
D)the account is a revolving credit account.
E)the account balance is below the credit limit.

Question 47

William uses his bank credit card frequently; however, he always pays off the total outstanding balance on the card each month. What should William look for in a credit card given the way he uses one?

A)A low annual fee and a grace period
B)A low annual fee and a low interest rate
C)No annual fee and a grace period
D)No annual fee and a low interest rate
E)A high annual fee and a low interest rate

Question 48

If the information in an individual borrower's credit report contains an error, he or she is entitled to:

A)request a correction.
B)sue the credit bureau.
C)erase the credit report.
D)refuse to provide credit information.
E)withdraw from the credit bureau.

Question 49

Which of the following forms of consumer credit is among the cheapest and offers limited tax deductions?

A)Overdraft protection lines
B)Home equity credit lines
C)Credit cards
D)Unsecured personal credit
E)The Wage Earner Plan

Question 50

Which of the following statements about credit scoring systems is true?

A)Lower credit scores are better than higher credit scores.
B)The credit scoring system is based on extensive statistical studies.
C)Credit unions calculate and sell credit scores to lenders.
D)FICO scores consider age, gender, marital status, and so on.
E)Strength in key personal traits shows that you are a good risk for lenders and reduce your credit score.

Question 51

Retail charge cards are advantageous to merchants because:

A)they help the merchants get loans.
B)they help build consumer loyalty.
C)they help the merchants file for bankruptcy.
D)they help the merchants save taxes.
E)they help the merchants give loans to their suppliers.

Question 52

Which of the following does a lender look at before granting credit to an applicant?

A)The applicant's political interests
B)The applicant's circle of friends
C)The applicant's age
D)The applicant's religious affiliations
E)The applicant's career goals

Question 53

Sheldon has a home valued at $108,000 with an outstanding mortgage of $70,000. If his lender is willing to provide a home equity loan of up to 80% of the market value of his home, how much can Sheldon borrow using a home equity loan?

A)$86,400
B)$80,000
C)$38,000
D)$30,400
E)$16,400

Question 54

Mike has a MasterCard with an annual fee of $25, an 18% interest, and a $1,000 credit limit. He always pays the total outstanding balance monthly. His most recent monthly statement lists the previous month's payment, new charges in the current month totaling $1,500, and a $30 fee. The fee is most likely the result of:

A)interest charges.
B)his annual fee.
C)an over-the-limit fee.
D)a late payment.
E)transaction fees on purchases.

Question 55

James finds it difficult to manage credit but wants the convenience of using a credit card. He wants to get a card that will provide direct access to his checking account. James should get a:

A)retail charge card.
B)gift card.
C)student credit card.
D)debit card.
E)membership card.

Question 56

A(n)_____ is a type of reporting agency that collects and sells credit information about individual borrowers.

A)credit bureau
B)consumer bureau
C)insurance company
D)bank
E)credit scoring house

Question 57

A payment made using a(n)_____ is equivalent to paying by cash.

A)retail credit card
B)debit card
C)affinity card
D)reward card
E)student credit card

Question 58

Which of the following is not requested in a typical credit card application?

A)Charge accounts
B)Housing
C)Employment
D)Income
E)Political affiliations

Question 59

Any credit card purchase will effectively be an interest-free loan if you have a zero balance when the grace period begins and you:

A)pay for the purchase within 6 months.
B)make the minimum payment.
C)pay off the entire balance on or before the due date.
D)pay a $5 fee or 3% of the amount charged.
E)receive a cash advance.

Question 60

Which of the following statements about the cash advances that the holder of a bank credit card can obtain from participating banks is true?

A)Cash advances are loans on which interest begins to accrue only when the borrower uses them to make purchases.
B)Cash advances without any limits can be withdrawn from an ATM using credit cards.
C)Cash advances obtained from the teller window at a bank are limited by the unused credit in the borrower's account.
D)Cash advances can be obtained only during the hours the bank is open.
E)Cash advances are loans obtained from an ATM using credit cards that do not allow merchandise purchases.

Question 61

The FICO credit scoring system assigns points according to:

A)amounts owed.
B)marital status.
C)employment history.
D)salary.
E)where you live.

Question 62

Which of the following is an example of phishing?

A)Using bills in the trash to obtain others' personal information
B)Rerouting bills to a different address
C)Getting information from financial institutions under false pretenses
D)Stealing wallets
E)Pretending to be an employee of a financial institution

Question 63

Lenders' guidelines say that you are likely to have financial difficulties if your personal credit obligations exceed _____ of your take-home pay.

A)15%
B)20%
C)10%
D)3%
E)25%

Question 64

The decision about whether or not to grant you credit will be made by:

A)individual creditors.
B)local credit bureaus.
C)the credit cardholder.
D)the Federal Trade Commission.
E)national credit bureaus.

Question 65

Which of the following is a result of excess unused credit capacity?

A)Additional interest charges
B)FICO score reduction
C)Easy loan approval
D)Longer credit card introductory period
E)Chapter 13 bankruptcy

Question 66

An improper use of extended credit is buying:

A)a car.
B)a house.
C)an expensive dinner.
D)a piece of land.
E)furniture.

Question 67

If a borrower has a high FICO score, then there is:

A)a minimal chance of his or her loan getting approved.
B)no chance of his or her loan getting approved.
C)a high chance of his or her loan getting approved.
D)a high chance of more collateral requirements for his or her loan.
E)a high chance that a higher interest rate will be charged.

Question 68

Chapter 7 of the bankruptcy code:

A)restores all the losses incurred by the borrower.
B)results in the loss of all of one's assets.
C)requires the debtor to pay back the debt in the future.
D)sells only the home of the borrower.
E)eliminates most of the financial obligations of the borrower.

Question 69

Which of the following modes of identity theft involves thieves obtaining your personal information from financial institutions and other sources under false pretenses?

A)Dumpster diving
B)Skimming
C)Phishing
D)Pretexting
E)Old-fashioned stealing

Question 70

A straight bankruptcy:

A)eliminates all the obligations of a debtor.
B)results in the loss of all the assets of a debtor.
C)results in the repayment of debt within 3 to 5 years.
D)exempts a debtor from all the tax payments and payments for alimony and child support.
E)allows a debtor to retain some other personal assets as per federal regulations.

Question 71

The most expensive method for determining finance charges on revolving credit would be the:

A)average daily balance (ADB)method including new purchases.
B)average daily balance (ADB)method excluding new purchases.
C)annual percentage rate (APR)method including new purchases.
D)annual percentage rate (APR)method excluding new purchases.
E)annual percentage rate (APR)method excluding new purchases for student cards.

Question 72

Janey makes frequent small purchases and pays off the total outstanding balance on her credit card every month. Which of the following features is most attractive to her when searching for a credit card provider?

A)A low required minimum payment percentage
B)A high interest rate
C)High over-the-limit fees
D)No grace period
E)No annual fee

Question 73

A proper use of open account credit would be to buy:

A)food.
B)a washing machine.
C)expensive wine.
D)a designer purse.
E)jigsaw puzzles.

Question 74

A person who pays off his credit balance every month should look for a credit card with a:

A)long grace period.
B)high annual fee.
C)high interest rate.
D)low interest rate on existing balance.
E)low introductory rate.

Question 75

Most lenders immediately will _____ the first time that you have difficulty meeting your loan payments.

A)double your interest rate
B)file a legal case
C)grant an extension
D)erase your debt
E)repossess the property you purchased

Question 76

When canceling a credit card, you should cut up the card and _____ that you are canceling your account.

A)inform the issuer in writing
B)call to inform the issuer
C)inform the credit bureau in writing
D)call to inform the credit bureau
E)inform the future lender in writing

Question 77

A frequent flyer card can be aptly classified as a(n):

A)reward card.
B)affinity card.
C)retail charge card.
D)cash advance.
E)student card.

Question 78

_____ are the credit cards issued in conjunction with a sponsoring group-most commonly some type of charitable, political, or professional organization.

A)Affinity cards
B)Retail charge cards
C)Collateralized credit cards
D)Reward credit cards
E)Secured credit cards

Question 79

Credit offered in the form of _____ is most common in department and clothing stores and other high-volume outlets, where customers are likely to make several purchases each month.

A)collateralized credit cards
B)reward credit cards
C)affinity cards
D)retail charge cards
E)student credit cards

Question 80

Nancy's take-home income is $3,000 per month, and she currently has a $700 monthly consumer debt. Which of the following statements applies to Nancy's ability to handle additional debt?

A)Nancy cannot take on additional consumer debt because her debt safety ratio is higher than the lenders' guidelines.
B)Nancy can take on additional consumer debt because her debt safety ratio is higher than the lenders' guidelines.
C)Nancy cannot take on additional consumer debt because her debt safety ratio is lower than the lenders' guidelines.
D)Nancy can take on additional consumer debt because her debt safety ratio is lower than the experts' guidelines.
E)Nancy cannot take on additional consumer debt because her debt safety ratio is lower than the experts' guidelines.