Question 1

Credit should not be considered a substitute for cash.

Accepted Answer

False

Question 2

With an open-end credit, you pay back one-time loans in a specified period of time in equal amounts.

Accepted Answer

This statement is not accurate. With an open-end credit, you have a revolving line of credit and can borrow and repay funds repeatedly as long as you make minimum payments and stay below your credit limit. There may not be a specified period of time or equal amounts required for repayment.

Question 3

The use of credit can provide up to a 45 day "float."

Accepted Answer

False

Question 4

Consumer credit is based on trust in people's ability and willingness to pay bills when due.

Accepted Answer

Consumer credit is extended based on the trust that the borrower has the ability and willingness to repay the borrowed amount on time. Creditors evaluate the creditworthiness of individuals based on their credit history, income, and other financial information to determine the level of risk involved in extending credit.

Question 5

Perhaps the greatest disadvantage of using credit is the temptation to overspend.

Accepted Answer

When people use credit, they may be more likely to spend beyond their means since they are not immediately feeling the financial impact of their purchases. This can lead to debt accumulation and financial struggles.

Question 6

College students are not a prime target for credit card issuers.

Accepted Answer

College students are often targeted by credit card issuers because they are seen as a potentially profitable demographic due to their future earning potential and the likelihood of building long-term relationships with customers.

Question 7

Incidental credit is a credit arrangement that has no extra costs and no specific repayment plan.

Accepted Answer

Incidental credit is a type of credit arrangement where no extra costs are associated with the credit and no specific repayment plan is outlined.

Question 8

There are very few valid reasons for using credit.

Accepted Answer

While it is true that using credit can lead to debt and financial stress, there are also valid reasons for using credit such as building credit history, taking advantage of rewards programs, or making large purchases that would be difficult to afford with cash. However, it is important to use credit responsibly and pay off balances in full to avoid accumulating interest and debt.

Question 9

In a closed-end credit, loans are made on a continuous basis and you make at least partial payment.

Accepted Answer

In a closed-end credit, the loan is not made on a continuous basis; instead, it involves a fixed amount of money borrowed for a specific period of time, and the borrower makes regular payments until the loan is paid off in full.

Question 10

A line of credit is considered a form of revolving credit.

Accepted Answer

A line of credit is a type of credit where the borrower can draw funds up to a certain limit and repay it as per their convenience. The borrower is charged interest on the amount withdrawn and not the entire credit limit. As the borrower repays the amount, the credit becomes available again, making it a form of revolving credit.

Question 11

A line of credit is the maximum dollar amount of credit the lender has made available to you.

Accepted Answer

A line of credit is a pre-approved loan that the lender has made available to the borrower up to a certain dollar amount. The borrower can access the funds as needed and only pays interest on the amount borrowed, not the entire credit limit.

Question 12

The use of credit indicates personal and financial instability.

Accepted Answer

The use of credit may indicate a variety of financial situations, and it does not necessarily indicate personal or financial instability. Responsible and strategic use of credit can actually improve a person's financial stability over time.

Question 13

Interest is a periodic charge for the use of credit, or other finance charges.

Accepted Answer

This statement is true. Interest is a fee charged for borrowing money or using credit. It is typically calculated as a percentage of the principal amount borrowed and is charged periodically, such as monthly or annually. Other finance charges may include fees for things like late payments or balance transfers.

Question 14

"Shopaholics" and young adults are most vulnerable to misusing credit.

Accepted Answer

Studies have shown that individuals who are shopaholics or young adults are more likely to misuse credit, leading to high levels of debt and financial stress.

Question 15

Using a credit card, such as Visa or MasterCard is an example of closed-end credit.

Accepted Answer

Using a credit card, such as Visa or MasterCard is an example of open-end credit. Closed-end credit usually involves a one-time loan for a specific purpose with a fixed payment schedule, such as a car loan or a mortgage.

Question 16

Consumer credit refers to the use of credit for personal needs (except a home mortgage) by individuals.

Accepted Answer

Consumer credit is specifically for personal needs such as buying a car, appliances, or financing education. Home mortgage falls under the category of mortgage credit.

Question 17

Most consumers have only one choice in financing current purchases.

Accepted Answer

Most consumers have multiple options for financing current purchases, such as using a credit card, taking out a personal loan, or using in-store financing options.

Question 18

A credit file is a report which includes the individual's present employer and position, former employer(s), public records and a list of cheques returned for insufficient funds.

Accepted Answer

A credit file typically includes all of the mentioned information, including the individual's employment history, public records, and returned cheques.

Question 19

Collateral refers to the borrower's assets or net worth.

Accepted Answer

Collateral specifically refers to assets pledged by a borrower to secure a loan or other credit, and not to the borrower's overall net worth or total assets.

Question 20

It is safer to use credit, since charge accounts and credit cards let you shop and travel without carrying large amounts of cash.

Accepted Answer

With credit, you are not carrying large amounts of physical cash around with you, which can be lost or stolen. Instead, you are able to make purchases and travel with a card that has fraud protection and can be easily replaced if lost or stolen.

Quiz 5: Introduction to Consumer Credit