Question 1

Before taking out a loan, you should ask yourself whether you can meet all of your essential expenses and still afford the monthly loan payments. This can be determined by

Accepted Answer

Option D is the most comprehensive approach to determine whether you can afford the monthly loan payments. It involves adding up your basic monthly expenses and subtracting this total from your take-home pay. Then, you need to figure out what expenses you can give up to make the monthly loan payment without compromising your essential living expenses. This will give you a clear idea of whether the loan is affordable for you or not. Option A does not account for giving up expenses, option B is only relevant if you know what you plan to purchase, option C does not factor in essential expenses, and option E is incorrect as one of the options must be correct.

Question 2

Which of the following is the best scoring technique used in credit applications for consumers with limited credit histories?

Accepted Answer

VantageScore is designed to score more people who have limited credit histories by using alternative data and scoring methodologies, making it a better option for consumers with limited credit histories compared to traditional FICO scores.

Question 3

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

Accepted Answer

Only a debit card allows for electronic subtraction of funds directly from a savings or checking account. Credit cards and closed-end credit allow for borrowing money that must be paid back later, whereas gift cards and home equity loans are not directly linked to a checking or savings account for payment.

Question 4

Experts suggest that the debt payments-to-income ratio should be a maximum of

Accepted Answer

Experts generally recommend that the debt payments-to-income ratio should not exceed 20% to ensure financial stability and avoid over-indebtedness.

Question 5

Which of the following is NOT associated with credit cards?

Accepted Answer

A down payment on a home is not associated with credit cards. The other options (A, B, C, and D) are all commonly associated with credit cards.

Question 6

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

Accepted Answer

A home equity loan is a type of loan in which the borrower uses their home as collateral. This means that if you miss payments on the loan, the lender has the right to foreclose on your home and take possession of it. Therefore, losing your house is the most significant consequence of failing to make payments on a home equity loan.

Question 7

When calculating the debt-to-equity ratio, the following is NOT included:

Accepted Answer

The answer of When calculating the debt-to-equity ratio, the following...

Question 8

The question "Will you repay the loan?" relates to

Accepted Answer

The question about whether or not someone will repay a loan relates to their character, or their honesty and willingness to fulfill their obligations.

Question 9

A loan officer is examining whether or not to offer you a loan today. Specifically, she is examining your income and debts. Which of the five Cs of credit is the loan officer reviewing?

Accepted Answer

The loan officer is specifically looking at your capacity, which refers to your ability to repay the loan based on your income and debts.

Question 10

Bankruptcy courts treat gift cards

Accepted Answer

Bankruptcy courts treat gift cards the same way they handle unsecured debt. This means that the value of the gift card is included in the debtor's list of unsecured debt and may be discharged in bankruptcy. However, the debtor may need to relinquish any remaining balance on the gift card in order to satisfy some of their other debts.

Question 11

The use of property or savings to secure a loan relates to

Accepted Answer

Using property or savings to secure a loan is referred to as providing collateral.

Question 12

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

Accepted Answer

A credit card holder who pays off their balance in full each month is not a borrower as they are not carrying over any debt. They are not an impulsive lender, as that term does not exist. They are not a home equity holder, as this refers to someone who has borrowed against the equity in their home. The best choice is option B, a convenience user, as they use their credit card for the convenience and rewards, but do not carry over any debt.

Question 13

The Equal Credit Opportunity Act (ECOA) prohibits a lender from discriminating based on

Accepted Answer

The ECOA prohibits discrimination based on race, nationality, age, sex, and other factors such as marital status, religion, and income. Therefore, all the choices are prohibited under the ECOA.

Question 14

Which of the following is NOT a valid credit application question?

Accepted Answer

All of the options listed (A through D) are valid questions that can be found on a credit application. They are used to assess the applicant's financial situation and reliability.

Question 15

If you have reached the upper limit of debt obligations, your debt-to-equity ratio is about

Accepted Answer

The debt-to-equity ratio measures the proportion of debt and equity used to finance a company's assets. A debt-to-equity ratio of 1 means that all of the company's assets are financed by debt, which is the upper limit of debt obligations. Therefore, the answer is E.

Question 16

Home equity loans

Accepted Answer

Home equity loan interest is tax-deductible, making it an attractive option for many homeowners.

Question 17

What step can you take if your credit application is denied?

Accepted Answer

Asking the reasons why you were denied credit can help you understand the issues in your credit report or application, allowing you to address them before reapplying. It can also help you identify discriminatory practices that may be illegal. The other options are not appropriate or beneficial steps to take in this situation.

Question 18

The question "What are your assets and net worth?" relates to

Accepted Answer

The question is asking about a person's financial assets and net worth, which relates to their capital.

Question 19

FICO scores generally range from

Accepted Answer

FICO scores range from 350 to 850, with higher scores indicating better creditworthiness.

Question 20

When evaluating your credit application, a lender may NOT

Accepted Answer

Denying credit based on receiving public assistance is illegal under the Equal Credit Opportunity Act.

Quiz 5: Consumer Credit: Advantages, Disadvantages, Sources, and Costs