Question 1

What should you do when you shop online using your credit card?

Accepted Answer

Using a secure browser ensures that your personal and financial information is encrypted and protected from unauthorized access during the transaction.

Question 2

Jim Roy visits the doctor for his annual check-up which costs $85.He is billed for this at the end of the month.What type of credit did Jim use?

Accepted Answer

Incidental credit is a type of credit that arises as a result of a service provided, such as a medical bill, where payment is expected after the service is rendered.

Question 3

Robert Smith has monthly net income of $1,200.He has a house payment of $550 per month,a car loan with payments of $250 per month,a Visa card with payments of $40 per month,and a credit card with a local department store with payments of $58 per month.What is Robert's debt payments-to-income ratio?

Accepted Answer

To calculate Robert's debt payments-to-income ratio, add all his monthly debt payments together ($550 + $250 + $40 + $58 = $898) and divide by his monthly net income ($1,200). So, $898 / $1,200 = 0.7483, which is approximately 75%. However, the correct interpretation of this calculation is 75%, not 29%. It seems there was a mistake in my initial response. The correct calculation indeed yields a ratio that rounds to 75%, not 29%.

Question 4

Karen Price has determined that her net worth is $24,000,excluding her home.She owes $90,000 on her mortgage and $12,000 on a car loan.What is Karen's debt-to-equity ratio?

Accepted Answer

The answer of Karen Price has determined that her net...

Question 5

Which of the following is a credit bureau?

Accepted Answer

Experian is a credit bureau that collects and aggregates information on over one billion people and businesses including their credit history.

Question 6

Which one of the following is an advantage of using credit?

Accepted Answer

Credit can be a financial lifeline in emergencies, offering access to funds when cash might not be available.

Question 7

Which one of the following is important to do to help avoid credit card fraud?

Accepted Answer

Not receiving your billing statement on time could indicate that it has been intercepted by someone with malicious intent. Promptly notifying the company allows them to take necessary actions to prevent potential fraud.

Question 8

Karen Price is 55 years old,divorced,and has worked at her current job for five years.She is interested in looking at her credit report.Which of the following pieces of information should she find in this report?

Accepted Answer

Credit reports include current debt balances, such as the outstanding balance on credit cards, but do not include personal life details or financial information beyond a 7-10 year window.

Question 9

Jake Smith purchases a big screen TV on credit and will repay the loan with one payment at the end of 90 days.What type of credit did Jake use?

Accepted Answer

Jake used single lump-sum credit because he plans to repay the loan with one payment at the end of a specified period, without making a series of installment payments.

Question 10

Which of the following is most likely not a valid reason for using credit?

Accepted Answer

Borrowing to pay for recurring luxury expenses like expensive dinners and movies every week is not considered a valid reason for using credit. It can lead to unnecessary debt without providing any long-term financial benefits.

Question 11

Jane Calvert is applying for a loan from a bank.The bank knows she owns a house worth $160,000 and a car with a trade-in value of $12,000 as well as other personal assets worth approximately $44,000.Which one of the 5 Cs of credit is the bank looking at?

Accepted Answer

The bank is assessing Jane Calvert's capital, which refers to her personal assets, including her house, car, and other assets, to determine her financial stability and ability to repay the loan.

Question 12

Which federal consumer credit law requires creditors to inform applicants of acceptance or rejection of their credit application within 30 days of receiving a completed application?

Accepted Answer

The Equal Credit Opportunity Act (ECOA) mandates that creditors must notify applicants of the acceptance or rejection of their credit application within 30 days of receiving a completed application. This law is designed to ensure fair and equal access to credit for all applicants.

Question 13

Which one of the following is a disadvantage of using credit?

Accepted Answer

The temptation to overspend is a recognized disadvantage of using credit, as it can lead to accumulating debt beyond one's means to repay.

Question 14

Larry Arnold gets a direct loan of money to go on vacation with his family.There is no down payment,and he will repay the loan over the next twelve months.What type of credit did Larry use?

Accepted Answer

Installment cash credit is the correct answer because it involves borrowing a fixed amount of money and repaying it in equal payments over a set period, which matches Larry's situation.

Question 15

Jennifer Rogers needs a loan to purchase a new car.She knows the creditor must:

Accepted Answer

The Equal Credit Opportunity Act prohibits discrimination based on sex (among other factors), so creditors must evaluate Jennifer Rogers on the same basis as male applicants, ensuring fairness and equality in the loan application process.

Question 16

Paul Carter is applying for a loan from a bank.The bank is concerned because Paul is an airline pilot for United Airlines.The bank thinks that Paul may be laid off in the near future.Which one of the 5 Cs of credit is the bank concerned with?

Accepted Answer

The bank's concern about the possibility of Paul being laid off in the near future relates to "Conditions," which refers to the circumstances affecting the borrower's ability to repay the loan, including economic and industry-specific conditions.

Question 17

Gordon Carey uses his Visa card to purchase a new digital camera and lens.What type of credit did Gordon use?

Accepted Answer

Using a Visa card for purchases is an example of open-end credit, where the borrower can use credit up to a certain limit for a variety of purchases and make payments on the amount borrowed over time.

Question 18

Jennifer Gardner purchases a sofa,love seat and reclining chair for her family room.She made a down payment and will make payments of $65 per month for the next twenty-four months.What type of credit did Jennifer use?

Accepted Answer

Installment sales credit is used when a consumer makes a down payment on a purchase and then pays off the balance in installments, which is exactly what Jennifer is doing with her furniture purchase.

Question 19

The information in your credit report is used by the credit bureau to calculate your:

Accepted Answer

The information in your credit report is used by credit bureaus to calculate your FICO credit score, which is a measure of your creditworthiness based on your credit history.

Question 20

Maryann Lawrence wants to get a loan in just her name.She knows the creditor cannot:

Accepted Answer

Creditors cannot refuse credit if an individual is creditworthy, regardless of marital status or any other discriminatory factor. The other options (B, C, D, E) are all factors that creditors can consider when evaluating creditworthiness.

Quiz 6: Introduction to Consumer Credit