Deck 6: Introduction to Consumer Credit

Question 1

With closed-end credit, generally the seller holds the title to the merchandise until the payments have been completed.

Answer 1

True

Question 2

Installment cash credit is a direct loan of money for personal purposes, home improvements, or vacation expenses.

Answer 2

True

Question 3

Consumer credit dates back to colonial times.

Answer 3

True

Question 4

Credit when effectively used, can help you have more and enjoy more.

Question 5

Closed-end in credit is used for a specific purpose and involves a specified amount.

Question 6

Consumer credit is based on trust in people's ability and willingness to pay bills when due.

Question 7

Although credit allows more immediate satisfaction of needs and desires, it does not increase total purchasing power.

Question 8

Most consumers have only one choice in financing current purchases.

Question 9

With an open-end credit, you pay back one-time loans in a specified period of time in equal amounts.

Question 10

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

Question 11

"Shopaholics" and young adults are most vulnerable to misusing credit.

Question 12

The aging of the baby boom generation has added to the growth of consumer credit.

Question 13

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

Question 14

It is safer to use credit, since charge accounts and credit cards let you shop and travel without carrying large amounts of cash.

Question 15

With closed-end credit, loans are made on a continuous basis and you make at least a partial payment each billing period.

Question 16

Perhaps the greatest disadvantage of using credit is the temptation to overspend.

Question 17

Installment sales credit is a loan that allows you to receive high-priced items, such as large appliances or furniture.

Question 18

There are very few valid reasons for using credit.

Question 19

Most economists do not recognize consumer credit as a major force in the American economy.

Question 20

College students are not a prime target for credit card issuers.

Question 21

With a revolving line of credit, borrowings are permitted up to a specified limit and for a stated period.

Question 22

You should sign your new credit cards as soon as they arrive.

Question 23

Many retailers use open-end credit.

Question 24

If you cosign and the debt is not paid off, that fact does not become a part of your credit record.

Question 25

Single lump-sum credit is a loan that must be repaid in total on a specified day, usually within 30 to 90 days.

Question 26

If your debit card is lost or stolen, you must work directly with the issuer.

Question 27

The larger the debt-to-equity ratio, the riskier the situation is for lenders and borrowers.

Question 28

The smaller the debt-to-equity ratio, the riskier the situation is for lenders and borrowers.

Question 29

A home equity loan is usually set up as a revolving line of credit, typically with a variable interest rate.

Question 30

Debit cards are often called bank cards, ATM cards, cash cards, and check cards.

Question 31

If you cosign, the creditor can collect this debt from you without first trying to collect from the borrower.

Question 32

Using a credit card, such as Visa or MasterCard, is an example of closed-end credit.

Question 33

The Federal Trade Commission receives more consumer complaints about credit bureaus than about any other industry.

Question 34

The credit cardholders who pay off their balances in full each month are known as convenience users.

Question 35

Interest is a periodic charge for the use of credit, or other finance charges.

Question 36

The debt-to-equity ratio is calculated by dividing your monthly debt payments (not including house payments) by your net worth.

Question 37

A lender requires a cosigner even when a borrower meets the lender's criteria for making a loan.

Question 38

Department stores and gasoline companies are good places to obtain your first credit card.

Question 39

When you cosign a loan, you are being asked to guarantee this debt.

Question 40

The debt payments-to-income ratio is calculated by dividing your total liabilities by your net worth.

Question 41

In the 5 Cs of credit, capital refers to your assets or net worth.

Question 42

In the 5 Cs of credit, character refers to the borrower's attitude toward credit obligations.

Question 43

When imposters take your name, they are committing a crime.

Question 44

In the 5 Cs of credit, capital refers to your financial ability to meet credit obligations.

Question 45

In the 5 Cs of credit, capacity refers to the borrower's financial ability to meet credit obligations.

Question 46

The accuracy of credit reports has worsened recently.

Question 47

In the 5 Cs of credit, conditions refers to general economic conditions that can affect your ability to repay a loan.

Question 48

A home equity loan is based on the difference between the current market value of your home and the amount you still owe on your mortgage.

Question 49

You may not be denied credit because you receive Social Security or public assistance.

Question 50

In the 5 Cs of credit, collateral is an asset that you pledge to a financial institution to obtain a loan.

Question 51

The Equal Credit Opportunity Act is very specific about how a person's age may be used in credit decisions.

Question 52

The Fair Credit Reporting Act regulates the use of credit reports, requires the deletion of obsolete information, and gives consumers access to their files.

Question 53

Your friends and neighbors can get credit information about you.

Question 54

The Fair Credit Billing Act has a provision in which a lender can threaten your credit rating while you are resolving a billing dispute.

Question 55

A creditor may ignore your retirement income in rating your application.

Question 56

Credit bureaus obtain their data from banks, finance companies, merchants, credit card companies, other creditors, and court records.

Question 57

If someone has stolen your identity, the Federal Trade Commission recommends that you contact the fraud departments of each of the three major credit bureaus.

Question 58

The Fair Credit Billing Act sets the procedures for promptly correcting billing errors.

Question 59

Most of the information in your credit file may be reported for only seven years. If you have declared personal bankruptcy, that fact may be reported for 10 years.

Question 60

In the 5 Cs of credit, capacity refers to the borrower's attitude toward his or her credit obligations.

Question 61

Revolving check credit is a:

A) credit arrangement that has no extra costs.
B) prearranged loan for a specified amount that you can use by writing a special check.
C) credit arrangement that has no specific repayment plan.
D) synonym for installment cash credit.
E) synonym for single lump-sum credit.

Question 62

If you cosign a loan:

A) you are only responsible for half of the debt obligation.
B) you will be asked, but not required, to pay the loan if full if the borrower fails to pay.
C) you will be required to pay the loan in full if the borrower defaults on the payments.
D) the creditor must first try to collect from the borrower.
E) the creditor is prohibited from garnishing your wages if you refuse to pay the loan in full.

Question 63

Installment sales credit is a:

A) direct loan of money for personal purposes.
B) direct loan of money for home improvement.
C) loan that allows you to receive merchandise such as a refrigerator or furniture.
D) direct loan for vacation purposes.
E) synonym for a single lump-sum credit.

Question 64

A debit card:

A) immediately deducts the cost of your purchase from your bank account.
B) credits your account at the moment you buy goods or services.
C) is a new type of a credit card issued by VISA International.
D) is another name for a travel and entertainment card.
E) typically has a credit limit of $1,000.

Question 65

Today, Michael purchased a laptop computer from a retail outlet. He has agreed to pay for this purchase in full 30 days from today. This is an example of:

A) open-end credit.
B) a line of credit.
C) single lump-sum credit.
D) installment cash credit.
E) incidental credit.

Question 66

Mortgage loans, automobile loans, and installment loans for purchasing furniture or appliances are examples of:

A) a line of credit.
B) a credit card loan.
C) open-end credit.
D) closed-end credit.
E) convenience credit.

Question 67

In determining your credit capacity, you first provide for basic necessities, such as:

A) furniture.
B) home furnishings.
C) mortgage or rent.
D) automobile.
E) durable goods.

Question 68

When did installment credit explode on the American scene?

A) With the advent of the automobile in the early 1900s
B) With the advent of television in the late 1940s
C) Just after World War II
D) During the recession of the 1950s
E) During the inflation of the 1970s

Question 69

The baby boom generation currently represents about 30 percent of the population but holds nearly ____________ percent of the debt outstanding.

A) 80
B) 70
C) 60
D) 50
E) 40

Question 70

By paying cash for a purchase, you:

A) forgo the opportunity to keep the cash in an interest-bearing account.
B) always get a cash discount.
C) can build a better credit rating.
D) get better personal service from store employees.
E) have a better selection of goods than if you use credit.

Question 71

Experts suggest that you spend no more than ____________ percent of your net income on credit purchases.

A) 10
B) 20
C) 30
D) 40
E) 50

Question 72

A good example of closed-end credit is:

A) a credit card issued by a department store.
B) a credit card issued by VISA or MasterCard.
C) the use of overdraft protection at a bank.
D) the use of a cashier's check to pay for a purchase.
E) a mortgage loan.

Question 73

Another name for open-end credit is:

A) revolving credit.
B) a box of credit.
C) convenience credit.
D) installment credit.
E) single lump-sum credit.

Question 74

Consumer credit:

A) is a privilege of the affluent.
B) dates back to colonial times.
C) carries no finance charge.
D) is not a major force in our economy.
E) use has been declining in recent years.

Question 75

Another name for closed-end credit is:

A) a line of credit.
B) convenience credit.
C) revolving credit.
D) installment credit.
E) bank card credit.

Question 76

The maximum amount of credit you are allowed by a creditor is called:

A) revolving credit.
B) line of credit.
C) convenience credit.
D) installment cash credit.
E) single lump-sum credit.

Question 77

A credit arrangement that has no extra costs and no specific repayment plan is called:

A) installment sales credit.
B) single lump-sum credit.
C) line of credit.
D) incidental credit.
E) revolving check credit.

Question 78

Installment cash credit is a:

A) loan that must be repaid in total on a specified day.
B) direct loan of money for personal purposes.
C) loan that allows the consumer to receive merchandise, such as a refrigerator.
D) down payment made on a purchase.
E) synonym for single lump-sum credit.

Question 79

A good example of open-end credit is:

A) the use of a bank credit card to make a purchase.
B) a mortgage loan from a savings and loan institution.
C) an automobile loan from a credit union.
D) an installment loan from a furniture store.
E) an installment loan for purchasing a major appliance.

Question 80

Karen is notified by her credit card company that the credit limit on her credit card has just been increased to $10,000. This is one example of a change related to:

A) incidental credit.
B) closed-end credit.
C) a line of credit.
D) installment sales credit.
E) overdraft protection.