Question 1

Jake Skinner 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?
A)Installment sales credit
B)Installment cash credit
C)Single lump-sum credit
D)Revolving credit
E)Incidental credit

Accepted Answer

Jake used a single lump-sum credit, which means he borrowed a specific amount of money and will repay it in full at the end of the loan term, in this case, 90 days. Other forms of credit, such as installment sales credit, involve making regular payments over time until the loan is paid off, while revolving credit allows the borrower to continuously borrow up to a certain limit as long as they make at least the minimum payment each month. Incidental credit is typically associated with small, short-term loans for specific purchases, such as a store credit card.

Question 2

Which one of the following is a disadvantage of using credit?
A)Receiving advance notice of sales
B)Temptation to overspend
C)Avoiding the necessity of carrying cash
D)Ease of returning merchandise
E)Having a record of all purchases

Accepted Answer

Using credit can often lead to the temptation to overspend, which can result in high interest rates and debt accumulation. The other options listed are advantages of using credit.

Question 3

Maryann Lawrence wants to get a loan in just her name.She knows the creditor cannot:
A)refuse her credit if she is creditworthy.
B)consider income from her part-time job.
C)consider the payment history of all her joint accounts.
D)consider alimony payments she receives from her ex-husband.
E)consider child support payments she receives from her ex-husband.

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.

Question 4

Robert Smith has monthly net income of $1,050.He has a house payment of $450 per month,a car loan with payments of $250 per month,a Visa card with payments of $50 per month,and a credit card with a local department store with payments of $100 per month.What is Robert's debt payments-to-income ratio?
A)2.63
B)1.24
C)0.81
D)0.38
E)0.50

Accepted Answer

($250 + $50 +$100) / $1,050 = 0.38

Question 5

Jennifer Rogers needs a loan to purchase a new car.She knows the creditor must:
A)ask about how many children she plans on having.
B)consider whether she has a telephone in her own name.
C)evaluate her on the same basis as applicants who are male.
D)require her husband to cosign the loan.
E)ask about her birth control methods.

Accepted Answer

Gender discrimination is illegal under the Equal Credit Opportunity Act, which requires creditors to evaluate applicants based on their creditworthiness and ability to repay the loan, regardless of their gender. Therefore, Jennifer should expect to be evaluated on the same basis as male applicants. The other options are either irrelevant or discriminatory.

Question 6

Which one of the following is important to do to help avoid credit card fraud?
A)Sign your card as soon as you get it
B)Give out your credit card number over the phone
C)Write your credit card number on the outside of envelopes
D)Leave your credit card lying around anywhere
E)If your billing statement is incorrect, ignore it

Accepted Answer

Signing your card as soon as you get it can help prevent fraudsters from using your card if it is lost or stolen.

Answer: E 
 Ignoring a billing statement error can lead to unauthorized charges or fraudulent activity going unnoticed. It is important to review billing statements regularly and report any discrepancies to the credit card company immediately.

Therefore, the best choices are A and E.

Question 7

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?
A)Truth in Lending Act
B)Fair Credit Reporting Act
C)Fair Credit Billing Act
D)Equal Credit Opportunity Act
E)Fair Debt Collection Practices Act

Accepted Answer

The Equal Credit Opportunity Act requires creditors to inform applicants of acceptance or rejection of their credit application within 30 days of receiving a completed application. The other laws listed do not have this specific requirement.

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?
A)The address of the house she lived in as a child
B)A loan for furniture she paid off 12 years ago
C)The outstanding balance on the Visa card she has today
D)The names and addresses of her grown children
E)The fact that she was late paying her electric bill 8 years ago

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

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

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 10

Which of the following is a credit bureau?
A)Federal Reserve
B)Federal Trade Commission
C)Better Business Bureau
D)Experian
E)FICO

Accepted Answer

Experian is a credit reporting agency, also known as a credit bureau, that collects and analyzes credit information on individuals and businesses to create credit reports and scores. The Federal Reserve is the central bank of the United States, the Federal Trade Commission is a government agency that enforces consumer protection and antitrust laws, the Better Business Bureau is a non-profit organization that provides ratings and reviews on businesses, and FICO is a credit scoring company that uses data from credit bureaus to calculate credit scores.

Question 11

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?
A)Installment sales credit
B)Installment cash credit
C)Single lump-sum credit
D)Closed-end credit
E)Incidental credit

Accepted Answer

Jim used incidental credit, where he received a service (the check-up) and was billed later for the cost. This type of credit is typically used for small purchases or services and does not involve an ongoing credit account.

Question 12

Which of the following is most likely not a valid reason for using credit?
A)Borrowing for a stay in a hospital because of appendicitis
B)Borrowing to purchase a car so that you can go to work full-time
C)Borrowing to buy a printer for your home office now because you know it will be twice as expensive in two years
D)Borrowing to pay for your expensive dinner and movie every week
E)All of these are valid reasons for using credit.

Accepted Answer

Borrowing to pay for leisure expenses, such as an expensive dinner and movie, is not a valid reason to use credit. Credit should be used for essential expenses or purchases that will increase in value over time, such as a car or a home office printer.

Question 13

Larry Arnold gets a direct loan of money to go on vacation with his family.He will repay the loan over the next twelve months.What type of credit did Larry use?
A)Installment sales credit
B)Installment cash credit
C)Single lump-sum credit
D)Revolving credit
E)Incidental credit

Accepted Answer

Larry used installment cash credit, as he received a direct loan of money to be repaid over a fixed period of twelve months.

Question 14

Gordon Carey uses his Visa card to purchase a new digital camera and lens.What type of credit did Gordon use?
A)Installment sales credit
B)Installment cash credit
C)Single lump-sum credit
D)Open-end credit
E)Incidental credit

Accepted Answer

Gordon used his Visa card, which is a form of open-end credit. Open-end credit allows the borrower to use credit up to a certain limit and make payments over time with interest.

Question 15

Which federal consumer credit law allows consumers to withhold payment for faulty or defective goods or services when purchased with a credit card?
A)Truth in Lending Act
B)Fair Credit Reporting Act
C)Fair Credit Billing Act
D)Equal Credit Opportunity Act
E)Fair Debt Collection Practices Act

Accepted Answer

The Fair Credit Billing Act (FCBA) allows consumers to withhold payment for faulty or defective goods or services when purchased with a credit card. It also provides consumers with the right to dispute billing errors and provides guidelines for how credit card issuers must handle disputes.

Question 16

Jennifer Garner purchases a sofa,love seat and reclining chair for her family room and will make payments of $65 per month for the next twenty-four months.What type of credit did Jennifer use?
A)Installment sales credit
B)Installment cash credit
C)Single lump-sum credit
D)Revolving credit
E)Incidental credit

Accepted Answer

Jennifer used installment sales credit as she is making regular payments for a fixed period of time to pay off the purchase of the furniture.

Question 17

What should you do when you shop online using your credit card?
A)Delete immediately all records of your transactions
B)Use a secure browser
C)Give out your private information to anyone who requests it online
D)Make sure to open and download all files sent you by strangers
E)Give your password to anyone who requests it

Accepted Answer

Using a secure browser is important when shopping online with your credit card as it encrypts your personal and financial information, making it more difficult for hackers to steal your information. Deleting all records of your transactions may not be necessary and could make it difficult to track your purchases if there are any issues. Giving out your private information or password to anyone who requests it online is a major security risk and should never be done. Additionally, opening and downloading files from strangers can also put your computer and personal information at risk.

Question 18

Which one of the following is an advantage of using credit?
A)Potential bankruptcy
B)Spending beyond your budget
C)Funding an emergency expense
D)Committing future income to pay for current purchases
E)Incurring interest charges

Accepted Answer

Using credit can be an advantage in funding emergency expenses, as it allows for immediate access to funds that may not be available in cash.

Question 19

Karen Price has determined that her net worth is $30,000,excluding her home.She owes $80,000 on her mortgage and $15,000 on a car loan.What is Karen's debt-to-equity ratio?
A)3.2
B)2.0
C)0.5
D)2.7
E)0.3

Accepted Answer

$15,000 / $30,000 = 0.5

Question 20

The information in your credit report is primarily used by the credit bureau to calculate your:
A)debt to equity ratio.
B)FICO credit score.
C)debt payment to income ratio.
D)liquidity ratio.
E)long term capitalization ratio.

Accepted Answer

The FICO credit score is the primary calculation that credit bureaus use to evaluate a consumer's creditworthiness. This score is based on the information in the consumer's credit report, including their credit history and current credit usage. The other ratios listed are not typically used in credit reporting or evaluation.

Quiz 6: Introduction to Consumer Credit

Jake Skinner 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?

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

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

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

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

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?

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?

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?

Which of the following is a credit bureau?

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?

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

Larry Arnold gets a direct loan of money to go on vacation with his family.He will repay the loan over the next twelve months.What type of credit did Larry use?

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

Which federal consumer credit law allows consumers to withhold payment for faulty or defective goods or services when purchased with a credit card?

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

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

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

Karen Price has determined that her net worth is $30,000,excluding her home.She owes $80,000 on her mortgage and $15,000 on a car loan.What is Karen's debt-to-equity ratio?

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