Deck 5: Introduction to Consumer Credit

Question 1

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.

Answer 1

forgo the opportunity to keep the cash in an interest-bearing account.

Question 2

An installment loan 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.

Answer 2

loan that allows you to receive merchandise such as a refrigerator or furniture.

Question 3

When did installment credit explode on the North American scene?

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

Answer 3

with the advent of the automobile in the early 1900s

Question 4

Which of these is not a financing option for the purchase of a car?

A) factory financing
B) line of credit
C) conditional sales contract
D) installment loan
E) cash

Question 5

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

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

Question 6

Debt payments-to-income ratio is

A) calculated by dividing total liabilities by net worth.
B) calculated by dividing monthly debt payments (not including house payments) by net monthly income.
C) determined by dividing your assets into liabilities.
D) a useless ratio for determining your credit capacity.
E) rarely used by creditors in determining credit worthiness.

Question 7

Although credit permits more immediate satisfaction of needs and desires, it

A) does increase total purchasing power.
B) is always best to avoid credit purchases.
C) does not diminish your ability to buy more goods and services on credit.
D) has no opportunity costs attached to it.
E) does not increase total purchasing power

Question 8

Which of the following is not an example of revolving credit?

A) a line of credit.
B) a credit card loan.
C) overdraft protection.
D) charge cards.
E) automobile loans.

Question 9

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 10

A common example of a consumer loan is:

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

Question 11

A good example of an open-end credit is

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

Question 12

Which of these is not a true statement? To avoid online fraud, you should __________.

A) keep your personal information private.
B) review your monthly bank and credit card statements.
C) give your password only to your internet service provider.
D) use a secure browser.
E) give payment information only to know known businesses.

Question 13

Which of these is not a characteristic of Paypal?

A) Facilitates online auction payments.
B) Offers password protected accounts.
C) Allows use of credit cards.
D) Transfers funds in U.S. dollars.
E) No annual fees.

Question 14

The 25-to 44-age group 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 15

The maximum amount of credit you are allowed by a creditor is called a(n)

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

Question 16

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 17

A personal line of 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 18

Another name for credit when loans are made on a continuous basis and borrower is billed periodically for at least partial payment is known as:

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

Question 19

Which of the following is not an example of a consumer loan?

A) home mortgage
B) automobile loan
C) revolving credit
D) debt consolidation loan
E) demand loan

Question 20

If you cosign a loan,

A) you are not being asked to guarantee the debt.
B) it is not your legal responsibility to pay the debt.
C) you'll have to pay up to the full amount of the debt if the borrower does not pay.
D) the creditor must first try to collect from the borrower.
E) the creditor cannot garnish your wages.

Question 21

The borrower's attitude toward his or her credit obligations is called

A) capacity.
B) capital.
C) character.
D) collateral.
E) conditions.

Question 22

If your monthly net (after-tax) income is $1,500, what should be your maximum amount spent on credit payments?

A) $200
B) $300
C) $400
D) $500
E) $600

Question 23

If you think that your bill is wrong, you should first

A) contact the local credit bureau and inform it of the billing error.
B) complain to the Better Business Bureau.
C) contact your provincial consumer protection agency.
D) notify the creditor of the error.
E) contact your attorney to settle the matter.

Question 24

If there is incorrect information in your credit file,

A) you should sue the credit bureau.
B) you must sue the merchant who denied the credit.
C) the credit bureau must reinvestigate and modify or remove inaccurate data.
D) pray that the credit bureau goes bankrupt.
E) you cannot dispute the derogatory information.

Question 25

If you are an Ontario resident and you have declared personal bankruptcy for the first time, that fact may be reported by credit bureaus for ____________ years.

A) 5
B) 7
C) 12
D) 20
E) 25

Question 26

Which of the following agencies can produce for a subscribing creditor, almost instantaneously, a report about your past and present credit activity?

A) The Bank of Canada
B) The Canada Customs and Revenue Agency
C) Your financial institution
D) A debit bureau
E) A credit bureau

Question 27

If you have incorrect information in your credit file,

A) you can't really do much about it.
B) you have no legal remedies.
C) credit bureaus are not required to change it.
D) there are legal remedies available to you.
E) don't worry much because you will still get the credit.

Question 28

A valuable asset pledged to assure loan payments and subject to seizure upon default is called

A) capacity.
B) character.
C) capital.
D) collateral.
E) conditions.

Question 29

Kathy purchased a $2,000 digital TV from Young's Appliances. She will make 12 equal payments over the next year to pay for it. She is using:

A) an installment loan
B) open-end credit
C) revolving check credit
D) a line of credit
E) none of the above

Question 30

Which of the following is considered to be a consumer loan?

A) Debit card
B) Credit loan
C) Personal line of credit
D) Overdraft protection
E) Mortgage loan

Question 31

A loan officer is examining your income and the amount of your existing debt payments to help in the decision to make a loan to you today. Which aspect of the Five Cs of lending is the loan officer most likely looking at?

A) Character
B) Capacity
C) Capital
D) Collateral
E) Conditions

Question 32

Generally, most of the information in your credit file may be reported for only ______ years.

A) 7
B) 9
C) 11
D) 13
E) 15

Question 33

Debt-to-equity ratio is

A) a useless ratio for determining your credit capacity.
B) calculated by dividing monthly debt payments by net monthly income.
C) determined by dividing your assets by liabilities.
D) calculated by dividing total liabilities by net worth.
E) rarely used by creditors in determining credit worthiness.

Question 34

The borrower's financial ability to meet credit obligations is called

A) capacity.
B) character.
C) capital.
D) collateral.
E) conditions.

Question 35

If you are a woman, a creditor must

A) require a spouse to cosign a loan.
B) ask about your birth control practices or family plans.
C) consider whether you have a telephone listing in your own home.
D) refuse individual credit in your own name.
E) consider income from your part-time employment.

Question 36

If your credit application is denied, you

A) can sue the credit rating agency.
B) can file a complaint against the merchant.
C) don't have any rights provided by law.
D) should ask to know specifically why.
E) can reapply for credit after 30 days.

Question 37

The best way to maintain your credit rating is to

A) use credit sparingly.
B) pay cash for your purchases.
C) repay your debts on time.
D) declare a Chapter 7 bankruptcy.
E) use as many credit cards as you can.

Question 38

A term that refers to the borrower's assets or net worth is called

A) capacity.
B) character.
C) capital.
D) collateral.
E) conditions.

Question 39

In evaluating your credit application, a lender may

A) ask your age.
B) want to know if you are on public assistance.
C) require your marriage certificate.
D) ask if you are married or divorced.
E) ask your race and nationality.

Question 40

What can be included in your credit report?

A) race
B) nationality
C) sex
D) employer
E) religion

Question 41

Which of the following is the best rating to have on your credit report?

A) L0
B) L10
C) R0
D) R1
E) R9

Question 42

What percentage of Canadian households carry 1 or more credit cards

A) 20%
B) 30%
C) 50%
D) 70%
E) more than 80%

Question 43

Which of these is a characteristic of Paypal?

A) Facilitates online auction payments.
B) Offers password protected accounts.
C) Allows use of credit cards.
D) Transfers funds in U.S. dollars.
E) All are characteristics of Paypal

Question 44

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

Question 45

The advantages of credit include

A) can purchase goods even when funds are low
B) carrying credit cards is safer than carrying cash
C) a credit card can allow you to carry up to a 30 day "float
D) credit cards may be used for identification when cashing a cheque
E) all of these are advantages of credit

Question 46

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

Question 47

If your identity is stolen you should

A) Contact the fraud departments of each of the two credit bureaus.
B) Contact the creditors for any accounts that have been tampered with or opened fraudulently.
C) File a police report
D) Keep a copy of the police report
E) Take all of the actions indicated

Question 48

A FICO score of 700 would be considered

A) poor
B) very poor
C) a risk to default
D) very good
E) fair

Question 49

What percentage of credit card users generally pay off their balance in full every month?

A) 20%
B) 30%
C) 50%
D) 70%
E) more than 80%

Question 50

Questions you should consider before you decide how and when to make a major purchase include all except

A) do I have the cash I need for a down payment
B) do I want to use my savings for this purchase
C) could I postpone this purchase
D) what are the psychological costs of using credit (being in debt and responsible for monthly payments)
E) all these questions should be considered

Question 51

FICO scores range between

A) 1-10
B) 1-100
C) 1-1,000
D) 300-900
E) 100-500

Question 52

Generally, most of the information in your credit file may be reported for only ______ years.

A) 1
B) 3
C) 7
D) 9
E) 12

Question 53

Which of the following is the worst rating to have on your credit report?

A) L0
B) L10
C) R0
D) R1
E) R9

Question 54

Valid reasons for using credit include all of the following except

A) medical emergency
B) acquiring a car to return to the workforce
C) borrowing for a higher education
D) borrow for everyday living expenses
E) buying an item now will cost less than in the future

Question 55

The best way to maintain your credit standing is to:

A) carry no credit cards
B) pay all credit card invoices within 120 days
C) repay your debts on time
D) cancel any cars with outstanding balances
E) if the balance is high and you cannot pay, claim your card was lost and misused by a 3^rd party

Question 56

Which of the following is not an example of revolving credit?

A) overdraft protection
B) charge cards
C) mortgage
D) line of credit.
E) bank card credit

Question 57

If you cosign a loan, all of the following are true except,

A) you are being asked to guarantee the debt.
B) it is your legal responsibility to pay the debt.
C) you'll have to pay only a portion of the debt if the borrower does not pay.
D) the creditor must first try to collect from the borrower.
E) the creditor can garnish your wages.

Question 58

If your monthly net (after-tax) income is $2,000, what should be your maximum amount spent on credit payments?

A) $200
B) $300
C) $400
D) $500
E) $600

Question 59

There are _________ main credit bureaus in Canada

A) 1
B) 2
C) 3
D) 5
E) 8

Question 60

When a creditor looks at the borrower's attitude toward credit obligations, which of the 5 Cs of credit is she analyzing?

A) Capacity
B) Capital
C) Character
D) Collateral
E) Conditions

Question 61

A car loan is an example of a consumer loan.

Question 62

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

Question 63

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

Question 64

Collateral refers to the borrower's assets or net worth.

Question 65

Credit should not be considered a substitute for cash.

Question 66

Most consumers have only one choice in financing current purchases.

Question 67

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

Question 68

The use of credit can provide up to a 45 day "float."

Question 69

A line of credit is considered a form of revolving credit.

Question 70

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

Question 71

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

Question 72

There are very few valid reasons for using credit.

Question 73

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

Question 74

The use of credit indicates personal and financial instability.

Question 75

A line of credit is the maximum dollar amount of credit the lender has made available to you.

Question 76

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

Question 77

Incidental credit is a credit arrangement that has no extra costs and no specific repayment plan.

Question 78

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

Question 79

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

Question 80

A credit file is a report which includes the individual's present employer and position, former employer(s), public records and a list of cheques returned for insufficient funds.