Question 1

Which one of the following is a disadvantage of using credit?
A) Receiving advance notice of sales
B) Ease of overspending
C) Avoiding the necessity of carrying cash
D) Ease of returning merchandise
E) Having a record of all purchases

Accepted Answer

The ease of overspending is a disadvantage of using credit because it can lead to accumulating debt and paying interest on the balance, which can be costly in the long run. The other options listed are advantages of using credit.

Question 2

Which consumer credit law prohibits creditors from requiring women to reapply for credit upon a change in marital status?
A) Fair Debt Collection Practices Act
B) Fair Credit Billing Act
C) Equal Credit Opportunity Act
D) Fair Credit Reporting Act
E) Truth in Lending Act

Accepted Answer

The Equal Credit Opportunity Act prohibits creditors from discriminating against applicants based on gender, and specifically prohibits requiring women to reapply for credit upon a change in marital status.

Question 3

Which consumer credit law prohibits abusive, deceptive, and unfair practices by debt collectors?
A) Fair Credit Billing Act
B) Fair Debt Collection Practices Act
C) Equal Credit Opportunity Act
D) Fair Credit Reporting Act
E) Truth in Lending Act

Accepted Answer

The Fair Debt Collection Practices Act (FDCPA) prohibits debt collectors from using abusive, deceptive, and unfair practices in their attempts to collect debts from consumers. It outlines specific rules and guidelines that debt collectors must follow, such as not calling at unreasonable hours or using harassment or threats to collect payment. The other listed consumer credit laws address different aspects of credit, but do not specifically regulate debt collection practices.

Question 4

Which federal law requires credit-reporting agencies to send the consumer's version of a disputed item to certain businesses and creditors?
A) Truth in Lending Act
B) Fair Credit Reporting Act
C) Fair Credit Billing Act
D) Equal Credit Opportunity Act
E) Fair Debt Collection Practices Act

Accepted Answer

The Fair Credit Reporting Act (FCRA) requires credit-reporting agencies to send the consumer's version of a disputed item to certain businesses and creditors. This is to ensure that the information being reported is accurate and up-to-date, and to give consumers the opportunity to correct any errors on their credit report.

Question 5

Which federal law prohibits credit card issuers from sending unrequested cards?
A) Truth in Lending Act
B) Fair Credit Reporting Act
C) Fair Credit Billing Act
D) Equal Credit Opportunity Act
E) Fair Debt Collection Practices Act

Accepted Answer

The Truth in Lending Act (TILA) prohibits credit card issuers from sending unrequested cards to consumers.

Question 6

Which federal law limits a cardholder's liability for unauthorized use of a card to $50?
A) Truth in Lending Act
B) Fair Credit Reporting Act
C) Fair Credit Billing Act
D) Equal Credit Opportunity Act
E) Fair Debt Collection Practices Act

Accepted Answer

The Truth in Lending Act (TILA) includes provisions that limit a cardholder's liability for unauthorized use of a credit card to $50.

Question 7

Larry Arnold gets a direct loan of money to go on vacation with his family. He will repay the loan over the next twelve months. What type of credit did Larry use?
A) Installment sales credit
B) Installment cash credit
C) Single lump sum credit
D) Revolving credit
E) Incidental credit

Accepted Answer

Larry used installment cash credit because he received a direct loan of money to be repaid in regular installments over a specific period of time.

Question 8

Karen Price is 55 years old, divorced, and has worked at her current job for five years. She is interested in looking at her credit report. Which of the following pieces of information should she find in that report?
A) The address of the house she lived in as a child
B) A loan for furniture she paid off 12 years ago
C) The outstanding balance on the Visa card she has today
D) The names and addresses of her grown children
E) The fact that she was late paying her electric bill 8 years ago

Accepted Answer

The outstanding balance on the Visa card she has today is a current debt and should be included on her credit report.

Question 9

Which of the following is most likely not a valid reason for using credit?
A) Borrowing for a stay in a hospital because of appendicitis
B) Borrowing to purchase a car so that you can go to work full-time
C) Borrowing to buy a printer for your home office now because you know it will be twice as expensive in two years
D) Borrowing to pay for your expensive dinner and movie every week
E) All of these are valid reasons for using credit.

Accepted Answer

Borrowing for luxuries like an expensive dinner and movie every week is not a valid reason for using credit as it can lead to credit card debt and financial instability. The other options involve borrowing for essential needs or investments with potential future benefits.

Question 10

Jim Roy visits the doctor for his annual check-up which costs $85. He is billed for this at the end of the month. What type of credit did Jim use?
A) Installment sales credit
B) Installment cash credit
C) Single lump sum credit
D) Revolving credit
E) Incidental credit

Accepted Answer

Incidental credit occurs when services are provided with the understanding that payment will be made at a later date, such as a medical bill.

Question 11

Gordon Carey uses his Visa card to purchase a new digital camera and lens. What type of credit did Gordon use?
A) Installment sales credit
B) Installment cash credit
C) Single lump sum credit
D) Revolving credit
E) Incidental credit

Accepted Answer

Gordon used revolving credit by using his Visa card.

Question 12

Which one of the following is important to do to help avoid credit card fraud?
A) Sign your card as soon as you get it
B) Give out your credit card number over the phone
C) Write your credit card number on the outside of envelopes
D) Leave your credit card lying around anywhere
E) If your billing statement is incorrect, ignore it

Accepted Answer

Signing your credit card as soon as you receive it makes it more difficult for someone else to forge your signature and use your card for fraudulent transactions.

Question 13

Which federal law allows consumers to withhold payment for faulty or defective goods or services (within certain limitations) when purchased with a credit card?
A) Truth in Lending Act
B) Fair Credit Reporting Act
C) Fair Credit Billing Act
D) Equal Credit Opportunity Act
E) Fair Debt Collection Practices Act

Accepted Answer

The Fair Credit Billing Act allows consumers to withhold payment for faulty or defective goods or services (within certain limitations) when purchased with a credit card. This act requires that credit card companies investigate consumer complaints regarding inaccurate or disputed charges, and it provides consumers with certain rights when disputing billing errors.

Question 14

Karen Price has determined that her net worth is $30,000, excluding her home. She owes $80,000 on her mortgage and $15,000 on a car loan. What is Karen's debt-to-equity ratio?
A) 3.2
B) 2.0
C) 0.5
D) 2.7
E) 0.3

Accepted Answer

$15,000 / $30,000 = 0.5

Question 15

Which federal law requires creditors to inform applicants of acceptance or rejection of their credit application within 30 days of receiving a completed application?
A) Truth in Lending Act
B) Fair Credit Reporting Act
C) Fair Credit Billing Act
D) Equal Credit Opportunity Act
E) Fair Debt Collection Practices Act

Accepted Answer

The Equal Credit Opportunity Act (ECOA) requires creditors to inform applicants of acceptance or rejection of their credit application within 30 days of receiving a completed application. The other laws listed have different requirements and purposes, such as regulating interest rates (Truth in Lending Act), protecting consumer credit information (Fair Credit Reporting Act), resolving billing errors (Fair Credit Billing Act), and regulating debt collection practices (Fair Debt Collection Practices Act).

Question 16

Jake Skinner purchases a big screen TV on credit and will repay the loan with one payment at the end of 90 days. What type of credit did Jake use?
A) Installment sales credit
B) Installment cash credit
C) Single lump sum credit
D) Revolving credit
E) Incidental credit

Accepted Answer

Jake used single lump sum credit, which requires one payment at the end of a specified period of time.

Question 17

Which one of the following is an advantage of using credit?
A) Potential bankruptcy
B) Spending beyond your budget
C) Funding an emergency expense
D) Committing future income to pay for current purchases
E) Incurring interest charges

Accepted Answer

Using credit can provide a way to fund emergency expenses and provide access to money that may not be readily available in cash. However, it is important to use credit responsibly and within one's budget to avoid potential negative consequences such as bankruptcy or high interest charges.

Question 18

Jennifer Garner purchases a sofa, love seat and reclining chair for her family room and will make payments of $65 per month for the next twenty-four months. What type of credit did Jennifer use?
A) Installment sales credit
B) Installment cash credit
C) Single lump sum credit
D) Revolving credit
E) Incidental credit

Accepted Answer

Jennifer used installment sales credit, which allows her to make payments over a set period of time for a specific purchase.

Question 19

What should you do when you shop on-line using your credit card?
A) Delete immediately all records of your transactions
B) Use a secure browser
C) Give out your private information to anyone who requests it on-line
D) Make sure to open and download all files sent you by strangers
E) Give your password to anyone who requests it

Accepted Answer

Using a secure browser can help to protect your credit card information from being intercepted by hackers or malicious individuals. Deleting records of transactions may make it difficult to dispute charges or track your spending, while giving out private information or passwords to strangers increases the risk of identity theft. Opening or downloading files sent by strangers can also result in malware or viruses being installed on your device.

Question 20

Affan Chawdry has monthly net income of $1,050. He has a house payment of $450 per month, a car loan with payments of $250 per month, a Visa card with payments of $50 per month, and a credit card with a local department store with payments of $100 per month. What is Affan's debt payments-to-income ratio?
A) 2.63
B) 1.24
C) 0.81
D) 0.38
E) 0.50

Accepted Answer

The debt payments-to-income ratio is calculated by dividing total monthly debt payments by monthly net income. Affan's total monthly debt payments are $450 + $250 + $50 + $100 = $850. The ratio is $850 / $1,050 = 0.81.

Quiz 6: Introduction to Consumer Credit

Which one of the following is a disadvantage of using credit?

Which consumer credit law prohibits creditors from requiring women to reapply for credit upon a change in marital status?

Which consumer credit law prohibits abusive, deceptive, and unfair practices by debt collectors?

Which federal law requires credit-reporting agencies to send the consumer's version of a disputed item to certain businesses and creditors?

Which federal law prohibits credit card issuers from sending unrequested cards?

Which federal law limits a cardholder's liability for unauthorized use of a card to $50?

Larry Arnold gets a direct loan of money to go on vacation with his family. He will repay the loan over the next twelve months. What type of credit did Larry use?

Karen Price is 55 years old, divorced, and has worked at her current job for five years. She is interested in looking at her credit report. Which of the following pieces of information should she find in that report?

Which of the following is most likely not a valid reason for using credit?

Jim Roy visits the doctor for his annual check-up which costs $85. He is billed for this at the end of the month. What type of credit did Jim use?

Gordon Carey uses his Visa card to purchase a new digital camera and lens. What type of credit did Gordon use?

Which one of the following is important to do to help avoid credit card fraud?

Which federal law allows consumers to withhold payment for faulty or defective goods or services (within certain limitations) when purchased with a credit card?

Karen Price has determined that her net worth is $30,000, excluding her home. She owes $80,000 on her mortgage and $15,000 on a car loan. What is Karen's debt-to-equity ratio?

Which federal law requires creditors to inform applicants of acceptance or rejection of their credit application within 30 days of receiving a completed application?

Jake Skinner purchases a big screen TV on credit and will repay the loan with one payment at the end of 90 days. What type of credit did Jake use?

Which one of the following is an advantage of using credit?

Jennifer Garner purchases a sofa, love seat and reclining chair for her family room and will make payments of $65 per month for the next twenty-four months. What type of credit did Jennifer use?

What should you do when you shop on-line using your credit card?