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.

Accepted Answer

Improper use of credit can lead to overwhelming debt, which might necessitate filing for bankruptcy as a last resort to manage financial insolvency.

Question 2

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

Accepted Answer

Obtaining credit might be relatively straightforward based on factors like credit score and income, but paying it back can be challenging due to interest rates, financial instability, or unexpected expenses, making it not always easier.

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.

Accepted Answer

Credit typically decreases saving because individuals can borrow instead of saving for future purchases, and it increases spending because access to credit allows individuals to make purchases they might not otherwise afford.

Question 4

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

Accepted Answer

Excessive use of credit can lead to high levels of debt, which in turn can require significant portions of income to service, thereby reducing the amount of money available for savings.

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.

Accepted Answer

Interest is not the total amount to be repaid; it is an additional cost on top of the principal amount borrowed. The total amount to be repaid includes both the principal and the interest.

Question 6

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

Accepted Answer

Non-installment credit typically refers to credit that is extended for a short period and is expected to be repaid in a single lump sum, rather than over a series of payments or installments. Department store credit that allows for longer repayment periods would more accurately be described as installment credit or revolving credit, depending on the terms.

Question 7

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

Accepted Answer

Using credit can simplify transactions by reducing the need for physical checks, as purchases can be made electronically and paid for at a later date.

Question 8

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

Accepted Answer

The Credit CARD Act of 2009 imposed stricter regulations on how credit cards are issued to young adults, particularly those under 21, making it more difficult for college students to obtain credit cards without a co-signer or proof of independent income.

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.

Accepted Answer

Using credit does not increase the number of checks written; instead, it often reduces it by allowing electronic transactions or credit card payments, making this option the exception among the listed advantages of using credit.

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.

Accepted Answer

Credit is not more difficult to obtain than to repay. In fact, obtaining credit can be relatively easy for many people, but repaying debt, especially if it accumulates, can become challenging. This is why managing credit responsibly is crucial.

Question 11

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

Accepted Answer

Using credit responsibly and making payments on time are key factors in building and maintaining a good credit history.

Question 12

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

Accepted Answer

Credit cards allow you to borrow repeatedly up to a set credit limit while making monthly payments, which is characteristic of revolving open-end credit.

Question 13

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

Accepted Answer

Using more credit than can be repaid often leads to accumulating unsustainable debt, which is a primary cause of individual bankruptcies as people are unable to meet their financial obligations.

Question 14

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

Accepted Answer

The answer of Funds provided by a borrower that will...

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

Accepted Answer

Using credit does not inherently make it easier to save; in fact, it can often lead to spending more than one might without credit, thus not being a disadvantage of using credit. The other options listed are recognized disadvantages associated with the use of credit.

Question 16

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

Accepted Answer

Not using credit can lead to a lack of credit history, which lenders use to assess creditworthiness. Without a credit history, it may be difficult to qualify for loans or you might not receive the lowest interest rates.

Question 17

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

Accepted Answer

Having a history of using credit wisely, such as making payments on time and managing debt responsibly, is crucial for building a good credit score. This demonstrates to lenders that you are a low-risk borrower.

Question 18

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

Accepted Answer

Paying utility bills, such as electricity, gas, and water, on time can help establish and build a credit history, especially if the utility company reports these payments to the credit bureaus.

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.

Accepted Answer

The ability to save funds increases when credit payments are small because more disposable income is available for savings. Conversely, the ability to save is reduced when credit payments are large, as a larger portion of income goes towards repaying debts, leaving less available for savings.

Question 20

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

Accepted Answer

Revolving open-end credit usually specifies a maximum borrowing limit, which is the maximum amount that can be borrowed at any given time.

Quiz 7: Assessing and Securing Your Credit

Improper use of credit may

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

The impact of credit saving and spending.