Deck 6: Introduction to Consumer Credit

Question 1

Although credit allows more immediate satisfaction of needs and desires,it does not increase total purchasing power.

Answer 1

True

Question 2

Credit is an arrangement to receive cash,goods,or services now and pay for them in the future.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

All economists do not recognize consumer credit as a major force in the American economy.

Question 5

With closed-end credit,loans are made on a continuous basis and you are billed periodically for at least a partial payment.

Question 6

Credit,when effectively used,can help you have more and enjoy more.

Question 7

Single lump-sum credit is a loan that must be repaid in total on a specified day,usually within 30 to 90 days.

Question 8

Interest is a periodic charge for the use of credit.

Question 9

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

Question 10

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

Question 11

Installment cash credit is a direct loan of money for personal purposes,home improvements,or vacation expenses.

Question 12

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

Question 13

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

Question 14

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

Question 15

With closed-end credit,generally the seller holds the title to the merchandise until the payments have been completed.

Question 16

Consumer credit dates back to colonial times.

Question 17

Closed-end credit is used for a specific purpose and involves a specified amount.

Question 18

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

Question 19

Installment sales credit is a loan that allows you to receive high-priced items,such as large appliances or furniture.

Question 20

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

Question 21

The debt payments-to-income ratio is calculated by dividing your total liabilities by your net worth.

Question 22

If you cosign a loan and the debt is not paid off,then this fact does not become a part of your credit record.

Question 23

Department stores and gasoline companies are good places to obtain your first credit card.

Question 24

Debit cards are often called bank cards,ATM cards,cash cards,and check cards.

Question 25

If your debit card is lost or stolen,you must work directly with the issuer.

Question 26

To protect yourself against credit card fraud,you should shred anything with your account number on it before throwing it away.

Question 27

The larger the debt-to-equity ratio,the riskier the situation is for lenders and borrowers.

Question 28

A lender requires a cosigner even when a borrower meets the lender's criteria for making a loan.

Question 29

The Fair Credit Reporting Act,which regulates the use of credit reports,requires the deletion of obsolete information and gives consumers access to their files.

Question 30

Your friends and neighbors can get credit information about you.

Question 31

Credit bureaus obtain their data from banks,finance companies,merchants,credit card companies,other creditors,and court records.

Question 32

The accuracy of credit reports has worsened recently.

Question 33

The smaller the debt-to-equity ratio,the riskier the situation is for lenders and borrowers.

Question 34

The Consumer Financial Protection Bureau receives more consumer complaints about credit bureaus than about any other industry.

Question 35

The debt-to-equity ratio is calculated by dividing your monthly debt payments by your net worth.

Question 36

When you cosign a loan,you are being asked to guarantee this debt.

Question 37

With a revolving line of credit,borrowings are permitted up to a specified limit and for a stated period,usually 5 to 10 years.

Question 38

A home equity loan is usually set up as a revolving line of credit,typically with a fixed interest rate.

Question 39

The credit cardholders who pay off their balances in full each month are known as convenience users.

Question 40

If you cosign a loan,the creditor can collect this debt from you without first trying to collect from the borrower.

Question 41

If someone has stolen your identity,the Federal Trade Commission recommends that you contact the fraud departments of each of the three major credit bureaus.

Question 42

The Fair Credit Billing Act has a provision in which a lender can threaten your credit rating while you are resolving a billing dispute.

Question 43

The Equal Credit Opportunity Act is very specific about how a person's age may be used in credit decisions.

Question 44

When imposters take your name,they are committing a crime.

Question 45

In the 5 Cs of credit,conditions refers to general economic conditions that can affect your ability to repay a loan.

Question 46

In the 5 Cs of credit,capacity refers to the borrower's financial ability to meet credit obligations.

Question 47

In the 5 Cs of credit,capacity refers to the borrower's attitude toward his or her credit obligations.

Question 48

The baby boom generation currently represents about 30 percent of the population but holds nearly ________ percent of the outstanding debt.

A)80
B)70
C)60
D)50
E)40

Question 49

Consumer credit:

A)is currently a privilege of the affluent.
B)dates back to colonial times.
C)currently carries no finance charge.
D)is not a major force in our economy.
E)use has been declining in recent years.

Question 50

You may not be denied credit because you receive Social Security or public assistance.

Question 51

One common type of closed-end credit is:

A)a line of credit.
B)convenience credit.
C)revolving credit.
D)installment cash credit.
E)bank card credit.

Question 52

Most of the information in your credit file may be reported for only seven years.However,if you have declared personal bankruptcy,then this fact may be reported for 10 years.

Question 53

A home equity loan is based on the difference between the current market value of your home and the amount you still owe on your mortgage.

Question 54

The Fair Credit Billing Act sets the procedures for promptly correcting billing mistakes/errors.

Question 55

When did installment credit explode on the American scene?

A)With the advent of the automobile in the early 1900s
B)With the advent of television in the late 1940s
C)Just after World War II
D)During the recession of the 1950s
E)During the inflation of the 1970s

Question 56

In the 5 Cs of credit,capital refers to your financial ability to meet credit obligations.

Question 57

A creditor may ignore your retirement income in rating your application.

Question 58

In the 5 Cs of credit,collateral is an asset that you pledge to a financial institution to obtain a loan.

Question 59

In the 5 Cs of credit,capital refers to your assets or net worth.

Question 60

In the 5 Cs of credit,character refers to the borrower's attitude toward his or her credit obligations.

Question 61

An example of open-end credit is:

A)the use of a bank credit card to make a purchase.
B)a mortgage loan from a savings and loan institution.
C)an automobile loan from a credit union.
D)an installment loan from a furniture store.
E)an installment loan for purchasing a major appliance.

Question 62

The maximum dollar amount of credit the lender has made available to you is called:

A)revolving credit.
B)line of credit.
C)convenience credit.
D)installment cash credit.
E)single lump-sum credit.

Question 63

What would be the maximum limit for an individual's debt-to-equity ratio,excluding the home mortgage?

A)0.50
B)0.33
C)1.00
D)2.00
E)2.25

Question 64

Which federal law regulates the use of credit reports,requires the deletion of obsolete information,and gives consumers access to their file?

A)Truth in Lending Act of 1969
B)Fair Credit Billing Act of 1975
C)Equal Credit Opportunity Act of 1975
D)Fair Credit Reporting Act of 1971
E)Fair Debit Collection Practices Act of 1978

Question 65

Which one of the following agencies maintains data about the amount and terms of your credit and your paying habits?

A)Federal Reserve Bank in your district
B)Consumer sentinel network
C)Federal Trade Commission
D)Public assistance office
E)Credit bureau

Question 66

One example of closed-end credit is:

A)a credit card issued by a department store.
B)a credit card issued by VISA or MasterCard.
C)the use of overdraft protection at a bank.
D)the use of a Travel and Entertainment card.
E)a mortgage loan.

Question 67

A credit arrangement that has no extra costs and no specific repayment plan is called:

A)installment sales credit.
B)single lump-sum credit.
C)line of credit.
D)incidental credit.
E)revolving check credit.

Question 68

Installment cash credit is a:

A)loan that must be repaid in total on a specified day.
B)direct loan of money for personal purposes.
C)loan that allows the consumer to receive merchandise,such as a refrigerator.
D)down payment made on a purchase.
E)synonym for single lump-sum credit.

Question 69

Today,Michael purchased a laptop computer from a retail outlet.He has agreed to pay for this purchase in full 30 days from today.This is an example of:

A)open-end credit.
B)mortgage loan.
C)single lump-sum credit.
D)installment cash credit.
E)revolving check credit.

Question 70

If you cosign a loan:

A)you are only responsible for half of the debt obligation.
B)you will be asked,but not required,to pay the loan in full if the borrower fails to pay.
C)you will be required to pay the loan in full if the borrower does not pay.
D)the creditor must first try to collect from the borrower.
E)the creditor is prohibited from garnishing your wages if you refuse to pay the loan in full.

Question 71

Installment sales credit is a:

A)direct loan of money for personal purposes.
B)direct loan of money for home improvement.
C)loan that allows you to receive merchandise such as large appliances or furniture.
D)direct loan for vacation purposes.
E)synonym for a single lump-sum credit.

Question 72

In determining your credit capacity,you first provide for basic necessities within your budget,such as:

A)furniture.
B)home furnishings.
C)mortgage or rent.
D)automobile.
E)durable goods.

Question 73

Revolving check credit is a:

A)credit arrangement that has no extra costs.
B)prearranged loan for a specified amount that you can use by writing a special check.
C)credit arrangement that has no specific repayment plan.
D)synonym for installment cash credit.
E)synonym for single lump-sum credit.

Question 74

Many banks extend a bank line of credit,which is also called:

A)revolving check credit.
B)a box of credit.
C)convenience credit.
D)installment credit.
E)single lump-sum credit.

Question 75

Mortgage loans,automobile loans,and installment loans for purchasing furniture or appliances are examples of:

A)a line of credit.
B)a credit card loan.
C)open-end credit.
D)closed-end credit.
E)convenience credit.

Question 76

If your monthly net income is $1,250,what should be your maximum amount spent on credit payments?

A)$125
B)$250
C)$375
D)$500
E)$600

Question 77

A debit card:

A)decreases your account at the moment you buy goods or services.
B)extends credit and delays your payment.
C)is a new type of a credit card issued by VISA International.
D)is another name for a travel and entertainment card.
E)typically has a credit limit of $1,000.

Question 78

What can be included in your credit bureau file?

A)Race
B)Nationality
C)Sex
D)Marital status
E)Religion

Question 79

Which of the following is a prearranged loan for a specified amount that you can use by writing a special check?

A)Incidental credit
B)Closed-end credit
C)A bank line of credit
D)Installment sales credit
E)Overdraft protection

Question 80

Experts suggest that you spend no more than ________ percent of your net income (after-tax)on consumer credit payments.

A)10
B)20
C)30
D)40
E)50