Deck 5: Introduction to Consumer Credit

Question 1

Credit should not be considered a substitute for cash.

Answer 1

False

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

There are very few valid reasons for using credit.

Question 9

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

Question 10

A line of credit is considered 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.

Question 12

The use of credit indicates personal and financial instability.

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

Most consumers have only one choice in financing current purchases.

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.

Question 19

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

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.

Question 21

Cobranding is the linking of a credit card with a business trade name offering "points" or premiums toward the purchase of a product or service.

Question 22

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

Question 23

Experts suggest that you spend no more than 20 percent of your net income on credit payments.(However, 15 percent is much better.)

Question 24

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

Question 25

Cobranding has become increasingly unpopular since General Motors launched its credit card in 1992.

Question 26

The debt-to-equity ratio is calculated by dividing your monthly debt payments (not including house payments) by your net worth.

Question 27

If your debt-to-equity ratio is about 1, you have probably reached the upper limit of debt obligations.

Question 28

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

Question 29

Financing from car dealers in affiliation with financial institutions is called factory financing.

Question 30

In the near future, smart cards will provide a crucial link between the World Wide Web and the physical world.

Question 31

A personal line of credit is a pre-arranged loan for a specified amount that you can use by writing a special check.

Question 32

If your debt-to-equity ratio is about ½, you have reached the upper limit of debt obligations.

Question 33

You should sign your new credit cards as soon as they arrive.

Question 34

A home equity loan is a good source of credit for daily expenses.

Question 35

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

Question 36

A car loan is an example of a consumer loan.

Question 37

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

Question 38

A home equity loan is based only on the amount you still owe on your mortgage.

Question 39

There is always a transaction fee attached to make a cash advance.

Question 40

Financing from car dealers in affiliation with car manufacturers is called a conditional sales contract.

Question 41

Your credit report may be issued only if this occurs with your consent.

Question 42

Generally, most of the information in your credit file may be reported for only 3 years.

Question 43

A credit card cash withdrawal always incurs interest from the moment of withdrawal.

Question 44

Most creditors rely heavily on borrowers' bank reports when considering loan applications.

Question 45

Another name for credit when loans are made on a continuous basis and borrower is billed periodically for at least partial payment is known as:

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

Question 46

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

Question 47

Your friends and neighbors can get credit information about you.

Question 48

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

Question 49

The 25-to 44-age group currently represents about 30 percent of the population but holds nearly ____________ percent of the debt outstanding.

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

Question 50

Although credit permits more immediate satisfaction of needs and desires, it

A)does increase total purchasing power.
B)is always best to avoid credit purchases.
C)does not diminish your ability to buy more goods and services on credit.
D)has no opportunity costs attached to it.
E)does not increase total purchasing power

Question 51

Consumers have three alternatives in financing current purchases, including drawing up on savings, use their present earnings, or borrow against their expected future income

Question 52

Which of the following is not an example of a consumer loan?

A)home mortgage
B)automobile loan
C)revolving credit
D)debt consolidation installment loan
E)demand loan

Question 53

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

Question 54

Provincial legislation regarding consumer reporting agencies regulate the type of information that can appear in a credit report and protects the consumer's right not to suffer from false information.

Question 55

A common example of a consumer loan is:

A)a credit card issued by a department store.
B)a credit card issued by VISA or MasterCard.
C)using overdraft protection at a bank.
D)using a cashier's check to pay for a purchase.
E)a mortgage loan.

Question 56

By paying cash for a purchase, you

A)forgo the opportunity to keep the cash in an interest-bearing account.
B)always get a cash discount.
C)can build a better credit rating.
D)get better personal service from store employees.
E)have a better selection of goods than if you use credit.

Question 57

Some studies show that as many as three out of four cosigners are asked to repay the loan.

Question 58

It is legal for creditors to ask or assume anything about a woman's childbearing plans.

Question 59

When did installment credit explode on the North American scene?

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

Question 60

If you think your bill is wrong, you must notify your creditor in writing within 15 days after the bill was mailed.

Question 61

What can be included in your credit report?

A)race
B)nationality
C)sex
D)employer
E)religion

Question 62

Which of the following agencies can produce for a subscribing creditor, almost instantaneously, a report about your past and present credit activity?

A)The Bank of Canada
B)The Canada Customs and Revenue Agency
C)Your financial institution
D)A debit bureau
E)A credit bureau

Question 63

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

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

Question 64

Debt payments-to-income ratio is

A)calculated by dividing total liabilities by net worth.
B)calculated by dividing monthly debt payments (not including house payments) by net monthly income.
C)determined by dividing your assets into liabilities.
D)a useless ratio for determining your credit capacity.
E)rarely used by creditors in determining credit worthiness.

Question 65

Which of these is not a characteristic of Paypal?

A)Facilitates online auction payments.
B)Offers password protected accounts.
C)Allows use of credit cards.
D)Transfers funds in U.S.dollars.
E)No annual fees.

Question 66

If you cosign a loan,

A)you are not being asked to guarantee the debt.
B)it is not your legal responsibility to pay the debt.
C)you'll have to pay up to the full amount of the debt if the borrower does not pay.
D)the creditor must first try to collect from the borrower.
E)the creditor cannot garnish your wages.

Question 67

Kathy purchased a $2,000 digital TV from Young's Appliances.She will make 12 equal payments over the next year to pay for it.She is using:

A)an installment loan
B)open-end credit
C)revolving check credit
D)a line of credit
E)none of the above

Question 68

A good example of an open-end credit is

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

Question 69

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

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

Question 70

Debt-to-equity ratio is

A)a useless ratio for determining your credit capacity.
B)calculated by dividing monthly debt payments by net monthly income.
C)determined by dividing your assets by liabilities.
D)calculated by dividing total liabilities by net worth.
E)rarely used by creditors in determining credit worthiness.

Question 71

If your monthly net (after-tax) income is $1,500, what should be your maximum amount spent on credit payments?

A)$200
B)$300
C)$400
D)$500
E)$600

Question 72

Experts suggest that you spend no more than ____________ percent of your net income on credit purchases.

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

Question 73

If there is incorrect information in your credit file,

A)you should sue the credit bureau.
B)you must sue the merchant who denied the credit.
C)the credit bureau must reinvestigate and modify or remove inaccurate data.
D)pray that the credit bureau goes bankrupt.
E)you cannot dispute the derogatory information.

Question 74

Which of the following is not an example of revolving credit?

A)a line of credit.
B)a credit card loan.
C)overdraft protection.
D)charge cards.
E)automobile loans.

Question 75

An installment loan 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 a refrigerator or furniture.
D)direct loan for vacation purposes.
E)synonym for a single lump-sum credit.

Question 76

Which of these is not a financing option for the purchase of a car?

A)factory financing
B)line of credit
C)conditional sales contract
D)installment loan
E)cash

Question 77

The maximum amount of credit you are allowed by a creditor is called a(n)

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

Question 78

A personal line of 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 79

Which of these is not a true statement? To avoid online fraud, you should __________.

A)keep your personal information private.
B)review your monthly bank and credit card statements.
C)give your password only to your internet service provider.
D)use a secure browser.
E)give payment information only to know known businesses.

Question 80

Generally, most of the information in your credit file may be reported for only ______ years.

A)7
B)9
C)11
D)13
E)15