Question 1

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

Accepted Answer

Retail charge cards are typically issued by department stores and oil companies, allowing customers to charge purchases to their account with that specific store or company. Debit cards are tied to a checking account and do not involve lines of credit. Student credit cards are specifically geared towards students and are not limited to department stores and oil companies. Affinity cards and reward cards can be issued by a variety of businesses, not just department stores and oil companies.

Question 2

Any credit card purchase will effectively be an interest-free loan if you:

Accepted Answer

If you pay off the entire balance on or before the due date, you will not accrue any interest on your credit card purchase. This is the most financially responsible choice as it avoids interest charges and potential debt accumulation.

Question 3

Which of the following is not essential when a lender analyzes the creditworthiness of a borrower?

Accepted Answer

The answer of Which of the following is not essential...

Question 4

A person who pays off the total outstanding balance on his credit card monthly would prefer a credit card with:

Accepted Answer

A person who pays off the total outstanding balance on his credit card monthly would prefer a credit card with no annual fee as they do not carry a balance from month to month and would not benefit from rewards programs or other features that might justify annual fees.

Question 5

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

Accepted Answer

Lenders typically look at factors such as age, income, credit history, and employment stability before granting credit to a borrower. Political interests, friend circle, religious affiliations, and lifestyle are not relevant factors in the credit decision.

Question 6

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?

Accepted Answer

The answer of Sheldon has a home valued at $108,000...

Question 7

A payment made using _____ is equivalent to paying by cash.

Accepted Answer

A debit card is linked directly to the cardholder's bank account, and the funds are immediately deducted from the account when a transaction is made. This makes it similar to using cash, as the payment is immediate and the funds are not borrowed. The other options (retail credit card, affinity card, reward card, and student credit card) may offer benefits such as points, rewards, or discounts, but they involve borrowing money that must be repaid later with interest.

Question 8

The finance charges on two credit cards with the same stated annual percentage rate (APR):

Accepted Answer

The finance charges on two credit cards with the same stated annual percentage rate (APR) can differ based on the methods used to calculate balances, such as average daily balance or two-cycle billing. Therefore, option D is the correct answer.

Question 9

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?

Accepted Answer

The answer of Russ and Lois have a home valued...

Question 10

Consumer credit has become a popular way of making routine purchases because:

Accepted Answer

The availability of different types of credit is abundant, which has made consumer credit a popular way of making routine purchases. Consumers can choose from various credit options, including credit cards, personal loans, and lines of credit. This makes it easier for consumers to access credit when they need it, and to choose the type of credit that best suits their needs.

Question 11

A(n)_____ is an agency that provides credit information about individual borrowers to lenders.

Accepted Answer

A credit bureau is specifically designed to provide credit information to lenders who need to make a decision about whether to extend credit to an individual borrower. They collect information from a variety of sources, such as credit card companies, banks, and other financial institutions, and use this data to create credit reports and scores that lenders can use to evaluate creditworthiness.

Question 12

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 _____.

Accepted Answer

A debit card will allow James to have the convenience of using a card for payments, while also providing direct access to his checking account. This will help him manage his credit as he will not be able to spend more than what he has in his account. Retail charge cards, gift cards, student credit cards, and membership cards do not provide direct access to a checking account.

Question 13

Which of the following is true about credit scoring systems?

Accepted Answer

Credit scoring systems are purely based on statistical data and algorithms, and are designed to predict the creditworthiness of an individual. Lower credit scores indicate higher credit risk, and credit unions do not calculate or sell credit scores to lenders. Credit scores do not take into account personal traits such as gender, but rather factors such as payment history, debt-to-income ratio, and length of credit history.

Question 14

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

Accepted Answer

The answer of If the information in an individual borrower's...

Question 15

Which of the following calculation methods would produce more interest income for a person who uses his or her credit card very frequently?

Accepted Answer

Average daily balance including new purchases calculates interest on the entire balance, including new purchases, which results in more interest income for the credit card company.

Question 16

Ann Marie accumulated a large balance on her credit card while in college.She is trying to pay it off as quickly as possible and wants to roll the balance onto a new credit card.She now uses a credit card only for emergencies.What should Ann Marie look for in a credit card given the large balance and the way she plans to use the card?

Accepted Answer

Since Ann Marie is trying to pay off her balance as quickly as possible, she would benefit from a credit card with a low annual percentage rate (APR). This way, less interest will be charged on the balance, making it easier for her to pay off the debt. A low annual fee is also a good feature to look for in a card, but it is not as important as the APR in this case. A long grace period may not be necessary since Ann Marie only plans to use the card for emergencies. The balance calculation methods (average daily balance, two-cycle average daily balance) may affect how interest is calculated, but a low APR is still the most important feature to consider.

Question 17

Anna uses her credit card regularly,but she pays off her total outstanding balance monthly.Anna should look for a credit card with:

Accepted Answer

Since Anna pays off her balance monthly, she does not need to worry about interest rates or grace periods. She also does not need reward points or rebate programs. The best choice for Anna would be a credit card with no annual fees, as this will save her money in the long run.

Question 18

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?

Accepted Answer

Since William pays off his balance in full each month, he should look for a card with no annual fee and a long grace period to avoid interest charges.

Question 19

Retail charge cards are advantageous to merchants because:

Accepted Answer

Retail charge cards help build consumer loyalty, as customers are more likely to shop at a store where they have a charge card with benefits such as discounts and rewards. This can lead to increased sales and repeat customers. The other options are not true and do not demonstrate the advantages of retail charge cards to merchants.

Question 20

Which of the following can be excluded from a monthly credit card statement?

Accepted Answer

The type of goods purchased is not typically included on a monthly credit card statement.

Quiz 6: Using Credit