Deck 7: Assessing and Securing Your Credit

Question 1

Improper use of credit may

A) increase your ability to save money.
B) make it necessary to file for bankruptcy.
C) increase your personal wealth.
D) All of the above.

Answer 1

make it necessary to file for bankruptcy.

Question 2

It is always easier to pay back what you borrow than to obtain credit in the first place.

Answer 2

False

Question 3

The impact of credit ________ saving and ________ spending.

A) increases; decreases
B) decreases; increases
C) decreases; decreases
D) Credit has no relationship on saving and spending.

Answer 3

decreases; increases

Question 4

Excessive use of credit can impair your ability to save money.

Question 5

All of the following are correct statements about credit, except

A) the creditor provides funds.
B) credit needs to be paid back in the future.
C) credit repayment will include interest.
D) the interest is the total amount to be repaid.

Question 6

Credit issued by department stores for relatively long periods of time is called non-installment credit.

Question 7

An advantage to credit is it reduces the need for writing checks.

Question 8

The Credit CARD Act of 2009 made it easier for college students to obtain credit cards.

Question 9

Advantages of using credit are all of the following, except

A) the ability to cover cash flow shortages.
B) increases the number of checks written.
C) the ability to buy large items earlier.
D) convenience in making day-to-day transactions.

Question 10

Of the following statements, which is not a disadvantage of using credit?

A) It can be costly to use.
B) It can be difficult to repay if overused.
C) It is more difficult to obtain than repay.
D) It may tempt you to make impulse purchases.

Question 11

The proper use and control of credit is the best way to build a good credit history.

Question 12

Credit cards are an example of revolving open-end credit.

Question 13

Using more credit than can be repaid is a primary cause of individual bankruptcies.

Question 14

Funds provided by a borrower that will be repaid in the future, with interest, is credit.

Question 15

Which of the following is not a disadvantage of using credit?

A) Makes it easier to save
B) The potential high cost
C) The difficulty in paying back loans
D) The potential for personal bankruptcy

Question 16

If you refrain from using any credit, it will assure you the lowest possible interest rate when you decide to use it.

Question 17

In order to have good credit in the future, you must have used it wisely in the past.

Question 18

You can begin to build a credit history by using utility services.

Question 19

The ability to save funds is ________ when credit payments are ________.

A) increased; small
B) reduced; small
C) reduced; large
D) Both A and C are correct.

Question 20

Revolving open-end credit typically does not specify a maximum amount that can be borrowed.

Question 21

Which of the following is not true regarding revolving open-end credit?

A) Credit cards are an example of it.
B) A specific maximum amount of credit is established.
C) If the balance is not paid off over a period of months, a penalty is incurred.
D) Interest is charged on the remaining balance each month.

Question 22

Building a strong credit history (by making timely payments) when you are in college and beginning your career is

A) unwise as you will have to pay interest on the deferred amounts.
B) wise so that when you are ready to make major purchases like a car and a home, you can obtain favorable interest rates.
C) unwise; only buy what you can afford to pay with cash.
D) Both A and C are correct.

Question 23

Of the following statements, which is not an advantage of using credit?

A) Using credit wisely creates stability and allows you to establish a favorable credit history.
B) Buying today and paying tomorrow seems ideal, but continual spending can lead to financial problems.
C) Using credit is safe since using charge accounts and credit cards when you shop and travel is safer than carrying large amounts of cash.
D) Credit cards permit the purchase of goods even when cash funds are low.

Question 24

A(n) ________ extends credit by providing a service and billing for the service at the end of the time period.

Question 25

Which of the following is a disadvantage of using credit?

A) Ease of returning merchandise
B) Shopping convenience
C) Slowing of progress toward financial goals
D) Capacity to access credit in the future

Question 26

The use of credit may result in ________ spending and ________ debt.

A) controlled; reduced
B) excessive; increased
C) excessive; reduced
D) controlled; increased

Question 27

Which of the following will not help you establish a good credit history?

A) Paying your phone bill on time
B) Financing a car and making payments on time
C) Making as many purchases as possible with cash
D) Never exceeding your credit limit on your credit card

Question 28

The average credit card balance of college students including those with a zero balance is

A) less than $700.
B) between $1,000 and $3,000.
C) between $5,000 and $8,000.
D) over $8,000.

Question 29

A commitment by an insurance company to cover credit repayments under adverse conditions such as accident or illness is called

A) accident insurance.
B) credit insurance.
C) health insurance.
D) unemployment insurance.

Question 30

If you are making a purchase that you know that you will not be able to pay off for a relatively long period of time, you should seek which type of credit and why.

Question 31

All of the following situations are valid reasons to borrow funds, except

A) a medical emergency.
B) a college education.
C) purchasing a car in order to return to the workforce.
D) borrowing for everyday living expenses.

Question 32

Paying your phone bill and electric bill on time each month will help you to establish a(n) ________.

Question 33

Credit extended to consumers for short periods of time to make specific purchases is

A) installment credit.
B) non-installment credit.
C) revolving open-end credit.
D) minimum limit credit.

Question 34

The law that prohibits denying credit due to gender, age, race, national origin, religion, or marital status is

A) Fair Labor Standards Act.
B) the Fair Isaac Act.
C) Equal Credit Opportunity Act.
D) Fair Treatment of Borrowers Act.

Question 35

You are ready to make a new car purchase and the manufacturer is offering a 60-month, zero percent interest loan, or, a $1,500 cash rebate. The price of the car is $25,000. Which option should you choose?

A) Zero percent loan
B) $1,500 cash rebate
C) Negotiate to get both
D) Not enough information to make the decision.

Question 36

List at least three disadvantages of using credit.

Question 37

________ is short-term credit provided by some department stores to consumers to purchase specific items.

Question 38

Which of the following statements is true regarding non-installment credit?

A) The borrower has a longer time to repay.
B) Monthly payments of principal and interest must be paid.
C) The borrower has an unlimited amount of credit.
D) Credit is usually issued for 30 days or less.

Question 39

The federal law that prohibits the denying of credit based on gender, age, race, national origin, religion, or marital status is the ________.

Question 40

________ is a borrowing arrangement in which regular monthly payments of principal and interest must be made.

Question 41

The most important element in FICO credit scoring is your payment history.

Question 42

The minimum credit score required by financial institutions

A) varies by institution.
B) is 500.
C) is 550.
D) is 600.

Question 43

Which of the following is not a factor in the FICO credit scoring?

A) Credit utilization
B) Length of relationship with creditors
C) Marital status
D) Number of inquiries

Question 44

Which of the following will not be included on your credit report?

A) Social Security number
B) FICO score
C) Unpaid accounts
D) Companies that have recently accessed your report

Question 45

When creating credit scores, credit bureaus rely on a model created by the Fair Isaac Corporation.

Question 46

The Equal Credit Opportunity Act allows a creditor to deny credit based on a person's age.

Question 47

Credit scores in the 500-600 range will likely result in

A) lower interest rates.
B) higher interest rates.
C) automatic acceptance of your credit application.
D) preferential treatment of your application.

Question 48

Your credit report can be requested online and should be checked periodically for errors.

Question 49

Credit bureau is required to investigate any report of erroneous information on your credit report within thirty days.

Question 50

Which of the following is not one of the three primary credit bureaus?

A) Equifax
B) Experian
C) TransUnion
D) Fair Isaac Corporation

Question 51

The item that receives the most weight in the FICO credit scoring system is

A) the amount of credit used each month.
B) credit payment history.
C) credit utilization.
D) credit inquiries.

Question 52

The Financial Reform Act of 2010 established the Consumer Financial Protection Bureau to help ensure endorsements of financial products are accurate.

Question 53

If you find that you will not be able to make credit payments on time, the best course of action is to immediately notify the creditor.

Question 54

With a credit score of over 500, you should have no problem getting approval for credit purchases.

Question 55

Federal law requires creditors to explain the reasons for the denial of credit.

Question 56

Historical credit problems normally remain on a credit bureau's report for seven years and ten years for bankruptcy.

Question 57

TransUnion is not one of the three primary credit bureaus.

Question 58

Creditors prefer a ________ level of cash inflows and ________ level of cash outflows.

A) low; low
B) high; low
C) high; high
D) medium; low

Question 59

Creditors prefer a ________ amount of capital and ________ collateral in the best of circumstances.

A) low; low
B) high; low
C) high; high
D) medium; low

Question 60

The longer you maintain relationships with creditors, the lower will be your credit score.

Question 61

What steps can you take to improve your credit score?

Question 62

A credit score of ________ would normally allow you to have easy approval for credit.

A) 500
B) 600
C) 700
D) 1,000

Question 63

Credit payment history makes up ________ of your credit score.

A) 30%
B) 33%
C) 35%
D) 50%

Question 64

Generally, the ________ the credit history, the ________ the credit limit.

A) better; lower
B) worse; higher
C) better; higher
D) None of the above

Question 65

The ________ is a document showing information reporting your payment history and past use of credit.

A) credit report
B) asset payment history
C) revolving open-end credit
D) debit report

Question 66

________ is a credit arrangement where the balance may be paid off monthly and interest is only charged on the remaining unpaid amount.

A) The credit report
B) The credit payment history
C) Revolving open-end credit
D) The debit report

Question 67

________, ________, and ________ are the three major credit bureaus.

Question 68

Discuss the factors that are used in determining credit scoring in the FICO model.

Question 69

You should review your credit report from each credit bureau at least ________.

Question 70

Which of the following statements is not true regarding reviewing your credit report?

A) You will be able to determine if any errors have been made so they can be corrected.
B) It will help determine if there are credit cards that you should apply for to improve your credit standing.
C) It will reveal the kind of information that lenders will consider when making a decision to extend credit.
D) It will reveal deficiencies that you can work to eliminate to improve your credit rating.

Question 71

Historical credit problems remain on a credit bureau's report for ________ years while a bankruptcy remains for ________ years.

A) ten; twenty
B) seven; ten
C) eight; fifteen
D) five; ten

Question 72

If you plan on using your credit card to carry a balance for more than a month or two, you should

A) use the store issued cards since they are easier to obtain.
B) shop around for the card that offers the most introductory points.
C) shop around to find the lowest interest rate card on the market before you make the purchases.
D) A, B and C are all correct.

Question 73

Credit utilization makes up ________% of your credit score.

A) 10
B) 30
C) 50
D) unspecified

Question 74

The ________ is the most important factor used in the FICO credit scoring model.

A) credit report
B) credit payment history
C) revolving open-end credit
D) debit report

Question 75

Which of the following can be used by a creditor in deciding whether or not to grant credit?

A) Credit history
B) Race
C) Gender
D) Both A and C are correct.

Question 76

Free credit reports are accessible to all U.S. consumers at

A) www.creditreport.com.
B) www.freecreditreport.com.
C) www.annualcreditreport.com.
D) www.experian.com.

Question 77

Which of the following is not a step you should take to try to improve your credit score?

A) Reducing unnecessary expenditures
B) Destroying some credit cards
C) Applying for more credit cards
D) Notifying creditors of late payments

Question 78

Why is it so important that you make all of your credit and loan payments on time?

A) Late payment history lasts 7 years on your credit file.
B) The lender will be annoyed and not extend additional credit to you.
C) Late payment history lasts 10 years on your credit file.
D) Paying your credit cards and loans late just once will lead to bankruptcy.

Question 79

Very high credit scores are considered anything over ________.

Question 80

Obtaining an annual credit report is free but obtaining your credit scores requires payment to the credit bureaus.