Deck 5: Consumer Credit: Advantages, Dis-Advantages, Sources, and Costs

Question 1

Economists recognize consumer credit as a major force in the American economy.

Answer 1

True

Question 2

The easiest loans to obtain are also the least expensive.

Answer 2

False

Question 3

Closed-end credit consists of loans made on a continuous basis with periodic bills for at least partial payment.

Answer 3

False

Question 4

When used effectively,credit can help a consumer have more and enjoy more.

Question 5

Credit can indicate stability since lenders consider you a good risk.

Question 6

Interest paid on a credit card is tax-deductible.

Question 7

A trade-off of credit is that it increases the amount of money that will be available to spend in the future.

Question 8

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

Question 9

During the grace period,finance charges are assessed at only half the normal rate.

Question 10

A consumer applies for open-end credit to make a single purchase,such as a large appliance.

Question 11

Consumer credit dates back to colonial times when it was extensively used by farmers.

Question 12

Although credit allows immediate satisfaction of needs and desires,a greater advantage is that it increases total purchasing power.

Question 13

Consumer credit refers to the use of debit cards for personal needs.

Question 14

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

Question 15

The least expensive loans are often provided by parents or other family members.

Question 16

Consumer credit allows businesses to be more efficient or more productive.

Question 17

Open-end credit consists of loans made on a continuous basis with periodic bills for at least partial payment.

Question 18

A credit card holder who pays the full balance during the grace period each month is actually getting a free loan from the credit card company.

Question 19

A disadvantage of using credit is its use when making a hotel reservation.

Question 20

The most expensive loans are often provided by parents or other family members.

Question 21

The Equal Credit Opportunity Act requires that a lender not turn you down for credit based on your age as long as you are old enough to sign a legal contract,which is usually allowed at age 16.

Question 22

Most information in your credit file may be reported for only 7 years.

Question 23

You have a legal right to sue a credit bureau if you observe an error in your file.

Question 24

The debt-to-equity ratio is calculated by dividing your total liabilities,including your mortgage,by your net worth.

Question 25

A credit file can include your spouse's name and Social Security number.

Question 26

In the five Cs of credit,conditions refer to what will happen if the borrower does not repay the loan.

Question 27

In the five Cs of credit,capital refers to the borrower's ability to pay additional debts.

Question 28

FICO and VantageScore are two methods used to judge creditworthiness.

Question 29

The annual percentage rate is lower than the stated rate for loans that are repaid in monthly payments.

Question 30

The amount of interest paid is independent of the length of the loan.

Question 31

The longer the term for a loan at a given interest rate,the higher the overall interest charges.

Question 32

In the five Cs of credit,capacity refers to the borrower's trustworthiness and stability.

Question 33

FICO is a better score to use than VantageScore for consumers with limited credit histories.

Question 34

The Fair Credit Reporting Act,enacted in 1971,places limits on who can obtain your credit report.

Question 35

Experts suggest that you spend more than 20% of your after-tax (net)income on consumer credit payments.

Question 36

The add-on interest calculation uses this formula: Interest = Principal × Rate of interest × Time.

Question 37

A secured credit card is most appropriate for someone with a strong credit background.

Question 38

The higher your FICO score,the more risk you pose to creditors.

Question 39

A bankruptcy remains on a credit file for no more than 5 years.

Question 40

In the five Cs of credit,character refers to the borrower's trustworthiness and stability.

Question 41

You should keep a record of your credit card number separate from your card.

Question 42

If you are a cosigner for a loan and the debt is not repaid,that fact will appear on your credit report.

Question 43

Many people expect

A) Their ability to make payments to get harder over time.
B) Their incomes to increase to make it easier to make payments.
C) Their interest rates to decrease as their credit balances decrease.
D) Their interest payments to increase as their credit balances decrease.
E) Their household expenses to be covered with their mortgage payment.

Question 44

According to the Fair Credit Billing Act of 1975,a consumer may tell a credit card company to stop payment for a defective good if the consumer has made a sincere attempt to resolve the problem with the store.

Question 45

When used effectively,credit can result in

A) Default.
B) Bankruptcy.
C) Loss of creditworthiness.
D) Financial loss.
E) Improved lifestyle.

Question 46

According to law,a creditor may threaten your credit rating while you are negotiating a billing dispute.

Question 47

The Truth in Lending Act requires that creditors explain how they calculate the finance charge.

Question 48

Which of the following is a valid reason for borrowing?

A) Purchasing a car so a homemaker can return to work
B) Borrowing for a college education
C) Purchasing a home
D) Paying for a medical emergency
E) All of these are valid reasons for borrowing

Question 49

If you purchase something with a credit card,the finance charges you pay on an item could end up being more than the item is worth.

Question 50

The expected rate of inflation should not be considered when determining the amount of interest a creditor should charge.

Question 51

According to the Fair Credit Billing Act of 1975,a creditor must adjust the disputed amount in your account or tell you why the bill is correct within 30 days.

Question 52

The longer it takes for you to pay off a bill,the less interest you pay.

Question 53

The first sign of stolen identity might be that you get bills for a credit card account that you never opened.

Question 54

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made it easier for consumers to file Chapter 7 bankruptcy.

Question 55

Which of the following is NOT a valid reason for borrowing?

A) Purchasing a new dishwasher.
B) Paying for everyday living expenses.
C) Buying a car to start a new job.
D) Paying for a medical emergency.
E) All of these are valid reasons for borrowing.

Question 56

Installment credit exploded on the American scene with the advent of the

A) Airplane
B) Automobile
C) Cell phone
D) Computer
E) Train

Question 57

A typical grace period for many credit card issuers is

A) 0-10 days.
B) 10-20 days.
C) 20-25 days.
D) 30-40 days.
E) 45-60 days.

Question 58

Which of the following is NOT correct?

A) Using credit is appropriate to pay for medical emergencies.
B) Using credit can increase the amount of money that will be available to spend in the future.
C) Using credit sometimes occurs automatically, such as for water or electricity usage.
D) Using credit cards usually makes returning merchandise without a receipt easier.
E) Using credit allows consumers to enjoy goods and services now and pay later.

Question 59

Which of the following is NOT correct?

A) Using credit can result in a greater chance of bankruptcy.
B) Using credit can decrease the amount of money that will be available to spend in the future.
C) Using credit offers convenience when shopping on the Internet.
D) Using credit cards typically offer a "float" of up to 10 days.
E) Using credit allows a consumer to shop without carrying a large amount of cash.

Question 60

Which of the following questions is NOT needed before deciding how and when to make a major purchase?

A) Do I have the cash I need for the down payment?
B) Does the purchase fit my budget?
C) Could I postpone the purchase?
D) Could I use the credit I need for this purchase in some better way?
E) All of these are valid questions to ask.

Question 61

Before buying goods and services on credit,a consumer should consider all of the following except

A) Whether the good or service will have lasting value.
B) Whether the good or service will increase personal satisfaction during present income periods.
C) Whether the good or service will increase personal satisfaction during future income periods.
D) Whether current income will continue or increase.
E) Whether the good or service will be worth more because it was purchased with credit instead of cash.

Question 62

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 63

Which of the following is an example of open-end credit?

A) An automobile loan
B) A department store credit card
C) An installment loan for purchasing furniture
D) A mortgage loan
E) Single lump-sum credit

Question 64

Which of the following is NOT associated with credit cards?

A) A grace period
B) A finance charge
C) An annual fee
D) Convenience users and borrowers
E) A down payment on a home

Question 65

A direct loan for personal purposes,home improvements,or vacation expenses is called

A) A credit card.
B) An installment cash credit.
C) A bank line of credit.
D) Open-end credit.
E) Single lump-sum credit.

Question 66

A line of credit is

A) The equal payments required for one-time loans.
B) The loan amount for installment cash credit.
C) The maximum loan amount for closed-end credit.
D) The maximum dollar amount of credit the lender has made available.
E) The monthly payment required for single lump-sum credit.

Question 67

If you miss payments on a home equity loan,you can lose your

A) Savings account.
B) Car.
C) House.
D) Retirement account.
E) Furnishings.

Question 68

Home equity loans

A) Are based on the original purchase price of a home.
B) Have interest that is tax-deductible.
C) Do not have any security attached to the loan.
D) Have a 60-day grace period.
E) Are the most expensive loans available.

Question 69

A credit card holder who pays off his balances in full each month is known as

A) An impulsive lender.
B) A convenience user.
C) A home equity holder.
D) A convenience user AND a home equity holder.
E) All of these are correct.

Question 70

Which of the following electronically subtracts money from your savings or checking account to pay for goods and services?

A) A credit card
B) Closed-end credit
C) A debit card
D) A gift card
E) A home equity loan

Question 71

Which of the following is often considered to offer the least expensive loans?

A) Banks.
B) Finance companies.
C) Loan companies.
D) Parents or family members.
E) Savings and loan associations.

Question 72

Home equity loans should be used for

A) Buying dinner at a restaurant.
B) Borrowing money for impulse purchases.
C) Major expenses such as home improvements or education.
D) Getting cash for weekend entertainment.
E) Selling a car.

Question 73

The periodic charge for the use of credit is

A) A line of credit.
B) A revolving check credit.
C) Interest.
D) A grace period.
E) Principal.

Question 74

Many think that perhaps the greatest disadvantage of using credit is

A) The temptation to overspend.
B) The convenience offered instead of using cash.
C) The float from using credit.
D) The increase in total purchasing power.
E) The increased satisfaction during present and future income periods.

Question 75

Which of the following can result from a failure to repay a loan?

A) Bankruptcy.
B) Loss of income.
C) Loss of a good reputation.
D) Damage to family relationships.
E) All of these answers may be a result of the failure to repay a loan.

Question 76

Which of the following is an example of closed-end credit?

A) A mortgage loan.
B) A department store credit card.
C) Overdraft protection.
D) A bank line of credit.
E) All of these are examples of closed-end credit.

Question 77

Molly purchased a $1,500 dishwasher from Best Appliances.She will make 12 equal payments over the next year to pay for it.She is using

A) Closed-end credit.
B) Open-end credit.
C) Revolving check credit.
D) A line of credit.
E) None of these.

Question 78

A loan that must be repaid in total on a specified day,usually within 30 to 90 days,is

A) A credit card.
B) An installment cash credit.
C) A bank line of credit.
D) Open-end credit.
E) Single lump-sum credit.

Question 79

A cash advance

A) Increases a borrower's credit limit.
B) Is the cheapest way to obtain money when away from home.
C) Usually is obtained from a bank.
D) Accrues interest charges beginning the day the cash advance is made.
E) Is tax-deductible.

Question 80

A prearranged loan up to a specified amount that a consumer can access by writing a special check is known as

A) A bank credit card.
B) A revolving check credit.
C) Installment sales credit.
D) Single lump-sum credit.
E) Closed-end credit.