Deck 6: Building and Maintaining Good Credit

Question 1

Credit cards allow repeated use of credit as long as you make the minimum monthly payment.

Answer 1

True

Question 2

Advantages of credit use include increased protection against rip-offs and frauds.

Answer 2

True

Question 3

A principal problem with using credit is the opportunity cost of being less able to save and invest.

Answer 3

True

Question 4

Convenience use of a credit card is justified only if the card balance is paid in full by the end of the year.

Question 5

People can use credit to take advantage of "free" credit.

Question 6

The APR can be used to compare credit contracts with different time periods,finance charges,repayment schedules,and amounts borrowed.

Question 7

Credit use increases future buying power.

Question 8

When comparing loans from two or more sources you want to focus on the lowest monthly payment.

Question 9

Interest is the price of credit.

Question 10

Loans generally require equal payments over a set period of time.

Question 11

Credit cannot be used to own expensive products sooner.

Question 12

Convenience use of credit is common.

Question 13

Credit is a term used to describe any situation in which goods,services,or money is received in exchange for a promise to repay at a future date.

Question 14

Taking on excessive debts early in life may compromise your goal of being financially successful.

Question 15

The Truth in Lending Act requires lenders to state the finance charge both in dollars and as an annual percentage rate (APR).

Question 16

Credit card blocking is the process whereby the merchant may notify the credit card issuer to put a hold on your account for the anticipated total amount of the charge.

Question 17

The APR expresses the cost of credit on a monthly basis as a percentage rate.

Question 18

The most commonly used forms of credit by consumers are loans and credit cards.

Question 19

Credit cards allow repeated use of credit as long as equal monthly payments are maintained over a set period of time.

Question 20

The lower the annual percentage rate of interest (APR),the higher the cost of credit.

Question 21

Under the continuous-debt method of determining whether you are carrying too much debt you should be able to get out of all debt except mortgage debt completely within four years.

Question 22

The willingness of a lender to grant you credit is a good indicator that you can afford the payments required.

Question 23

The finance charge on a loan is simply the interest charged by the lender.

Question 24

The value of an asset less the amount owed on a debt used to buy the asset is your stake in the asset.

Question 25

A debt-to-equity method provides a quick idea of one's financial solvency.The larger the ratio,the riskier the likelihood of repayment.A ratio in excess of 0.25 is considered high.

Question 26

If your total debts exceed 33 percent of your net worth (equity)you are seriously overindebted.

Question 27

The additional dollar cost for using credit is referred to as the APR.

Question 28

A consumer that has nonmortgage debt repayments of 10 percent or more of annual take-home pay is seriously in debt.

Question 29

If you are unable to get completely out of debt every five years (except for a mortgage loan),you probably lean on debt too heavily.

Question 30

The debt-to-income method of determining your debt limit compares nonmortgage debts to take-home pay.

Question 31

Lenders pay a fee for each credit report requested.

Question 32

A debt-to-equity method provides a quick idea of one's financial solvency.The larger the ratio,the riskier the likelihood of repayment.

Question 33

It is a smart move to consolidate all your student loans into one loan once you graduate from college.

Question 34

The Equal Credit Opportunity Act prohibits the rejection of credit due to a poor credit history.

Question 35

According to a recent study,approximately 5 percent of those applying for credit are turned down.

Question 36

Credit scores can dictate whether you will be granted credit and at what interest rates.

Question 37

Lenders are not allowed to discriminate among applicants.

Question 38

Dual-earner households should consider lower debt limits as a percentage of income.

Question 39

A credit applicant is required by federal regulations to disclose all of his or her sources of income.

Question 40

Your debt limit is the overall maximum you believe you should owe based on your ability to meet the repayment obligations.

Question 41

Many offers for credit monitoring services are actually negative option plans that automatically sign you up for a credit reporting service.

Question 42

Misusing credit and not paying bills on time can damage employment prospects.

Question 43

The actual decision to grant credit is made by a credit bureau.

Question 44

Having both a checking and a savings account can help one get credit and at lower rates.

Question 45

Closing unused credit card accounts that have been open for a long time will likely not improve your credit score.

Question 46

Signing up for a "free" credit monitoring service where you are automatically renewed on a fee basis unless you cancel at the end of the free period is an example of a negative option plan.

Question 47

Although your credit file at each of the three major credit bureaus may differ,your credit scores will be the same.

Question 48

The three digit code on the back of a credit card that helps protect against unauthorized use of the card is called its card verification value.

Question 49

Credit scoring systems tend to ignore the degree to which you owe a high percentage of the available credit limits on your credit cards.

Question 50

Experian,Equifax,and TransUnion are the three largest national groups of credit bureaus.

Question 51

Closing credit card accounts will increase your credit score.

Question 52

Under a tiered pricing system,creditors charge lower interest rates to lower-risk borrowers.

Question 53

Identity theft is the most commonly perpetrated form of consumer fraud in the U.S.

Question 54

The higher your credit score the more you will pay for credit.

Question 55

The credit scores needed for credit approval vary from lender to lender.

Question 56

If your credit card is lost or stolen or if you ever suspect fraudulent use of an account,you should contact each of the three national credit bureaus and have a "high-risk account holder" designation put on your file.

Question 57

It is illegal for a creditor to charge different interest rates to different borrowers.

Question 58

The information about you contained in credit bureau files is one of the most important aspects of your financial life.

Question 59

You should review your credit bureau reports at least once every three years.

Question 60

You can instruct a credit bureau to not release your credit report to anyone without your permission by requesting a credit card block.

Question 61

Sales finance companies usually require collateral and deal with customers who are considered poor risks.

Question 62

The Fair Credit Reporting Act requires that reports contain accurate,relevant,and recent information,and that only bona fide users be permitted to review a file for approved purposes.

Question 63

Usury laws establish the maximum loan amounts,interest rates,and credit-related fees for different types of loans from various sources.

Question 64

Policyholders who have cash-value life insurance policies can obtain loans based on the cash values built up in their policies.

Question 65

You should change the marital status linked to your credit card account should you become married,separated,or divorced.

Question 66

Pay-day lenders are businesses that grant credit when they honor a personal check but agree not to deposit the check for a week or longer.

Question 67

You should try to borrow from the most selective lender for which you can qualify.

Question 68

Repossession is a legal proceeding by which the lender seizes an asset for nonpayment of a loan.

Question 69

Consumer finance companies make both secured and unsecured loans and require repayment on a monthly installment basis.

Question 70

A pawnshop will normally loan an amount equal to one-half or less of the value of the item pawned.

Question 71

Approximately one-fifth of all loans granted by consumer finance companies are for the purpose of debt consolidation.

Question 72

If the credit bureau refuses to make a correction to an error in your file,you may wish to provide your version of the disputed information by adding a consumer statement to your credit bureau file.

Question 73

When debts were accumulated in both names,divorce decrees have a legal effect on who technically owes which debts.

Question 74

The only truly free way to obtain your credit reports is through annualcreditreport.com.

Question 75

Applicants with low credit scores are often only able to obtain credit in the subprime lending market.

Question 76

If information in your credit report is proved to be erroneous,it must be corrected by the credit bureau.

Question 77

Your credit score can be negatively affected if you borrow from lenders who have low standards.

Question 78

Lenders who focus primarily on borrowers with low credit scores make up the secondary lending market.

Question 79

Divorce could affect the creditworthiness of both partners.

Question 80

Should the person covered by life insurance die before repaying a policy loan,the life insurance company will pay the entire face value of the policy to the beneficiaries.