Deck 6: Using Credit

Question 1

Credit should not be consistently used for purchasing nondurable goods.

Answer 1

True

Question 2

A retail charge card can be accessed by writing checks against demand deposit.

Answer 2

False

Question 3

Retail charge cards are cheaper than credit cards provided by financial institutions.

Answer 3

False

Question 4

The purpose of a credit report is to evaluate the kind of risk you pose to the lender.

Question 5

One should not use credit to purchase food,clothing,and other nondurables,even if it is only for convenience and the balance will be completely paid upon billing.

Question 6

The most common forms of open account credit are bank credit cards and retail charge cards.

Question 7

An individual can be overusing credit even if he or she can afford to make the minimum monthly payments on time.

Question 8

Always paying cash helps in establishing a high level of creditworthiness.

Question 9

Using credit is the ideal way to provide for financial emergencies.

Question 10

The key to creditworthiness is to maintain your debt safety ratio at 50 percent or above.

Question 11

Credit cards with very low minimum payment requirements are in the consumers' best interest.

Question 12

Using more than 20 percent of one's take-home income to pay off consumer debt is one of the signs that he or she may be headed toward serious credit problems.

Question 13

A credit report is routinely used to predict creditworthiness.

Question 14

Saving is preferred to borrowing when providing for financial emergencies.

Question 15

Most families have only one source for consumer credit.

Question 16

A debit card looks and works like a credit card.

Question 17

Credit reports on individual borrowers are provided by credit card issuers.

Question 18

Paying a loan ahead of schedule is one way to build a good credit history.

Question 19

Arranging for and fully repaying a small loan helps improve creditworthiness.

Question 20

Debit cards are very convenient to use as they work like writing a check.

Question 21

It is recommended that you never give your credit card account number over the phone to people or organizations who call you.

Question 22

Overspending will help you manage your budget effectively.

Question 23

Finance charges are computed only on the unpaid balance from previous months' purchases.

Question 24

One can and should check his or her credit bureau file regularly.

Question 25

AChapter 13 bankruptcy filing would result in the discharge of most of your debts.

Question 26

A credit applicant is granted credit only after establishing a complete file at the local credit bureau.

Question 27

If you initiated the telephone call,it is okay to give your credit card account number when ordering or purchasing from major catalog houses,airlines,hotels,and so on.

Question 28

It is safe and is always necessary to give your Social Security number for identification when using a credit card.

Question 29

The intent of the Wage Earner Plan is to eliminate all of a debtor's obligations.

Question 30

An individual's credit bureau file often includes information about his or her political and religious affiliations in addition to his or her financial information.

Question 31

For a fee,credit bureaus can provide credit scores of prospective borrowers.

Question 32

The majority of persons filing for bankruptcy chooseChapter 7 of the U.S.Bankruptcy Code.

Question 33

All credit cards have annual fees.

Question 34

Families that have a steady source of income and a reasonable chance to repay debts would chooseChapter 13 rather thanChapter 7 of the U.S.Bankruptcy Code.

Question 35

A credit card user's credit rating will be hampered if he or she pays only the minimum monthly payment on a credit card.

Question 36

The amount of finance charges one pays on a credit card depends only on the annual percentage rate (APR)and the grace period charges.

Question 37

People who let their credit balances build up are mortgaging their future.

Question 38

The most common method used by lenders to apply finance charges on credit cards is the average daily balance method including new purchases.

Question 39

The most common method of computing finance charges on a credit card is the average daily balance method including new purchases.

Question 40

Credit scoring systems are often used by lenders to determine applicants' creditworthiness.

Question 41

With a bank credit card,one can often avoid interest charges if:

A)the account balance is paid in full every month.
B)at least half the account balance is paid every month.
C)the minimum payment is made every month.
D)the account is a revolving credit account.
E)the account balance is below the credit limit.

Question 42

If your monthly before-tax income is $2,000 and your monthly take-home pay is $1,500,your maximum monthly consumer credit payments should not exceed:

A)$600.
B)$450.
C)$400.
D)$300.
E)$200.

Question 43

Mike has a MasterCard with an annual fee of $25,an 18% interest,and a $1,000 credit limit.He always pays the total outstanding balance monthly.His most recent monthly statement lists the previous month's payment,new charges in the current month totaling $1,500,and a $30 fee.The fee is most likely the result of:

A)interest charges.
B)his annual fee.
C)an over-the-limit fee.
D)a late payment.
E)transaction fees on purchases.

Question 44

It is good to use credit for:

A)buying groceries.
B)purchasing an expensive perfume.
C)buying a car.
D)visiting a tourist destination.
E)buying an expensive dress.

Question 45

Interest will usually begin to accrue immediately when you use a bank credit card to:

A)make purchases.
B)send payments.
C)compute finance charges.
D)get cash advances.
E)meet a financial emergency.

Question 46

Which of the following will lead to a poor credit rating?

A)Opening checking and savings accounts
B)Opening and using a charge account
C)Applying for a long-term loan and occasionally being late with a payment
D)Making payments ahead of schedule
E)Discussing with the lender if you foresee difficulty in making a payment

Question 47

Which of the following statements is true of retail charge cards?

A)Retail charge cards are issued by retailers that allow customers to charge goods and services up to a preestablished amount.
B)Retail charge cards work exactly like debit cards and provide direct access to the checking accounts of consumers.
C)Retail charge cards are issued in conjunction with some charitable,political,or other nonprofit organization.
D)Retail charge cards are secured with some form of collateral,such as a bank CD.
E)Retail charge cards provide incentives,such as cash,merchandise rebates,airline tickets,or even investments to the users.

Question 48

Clare's annual gross salary is $36,000,and her after-tax income is $28,800.What is Clare's maximum recommended monthly consumer credit payment?

A)$600
B)$480
C)$450
D)$360
E)$200

Question 49

Which of the following would be an indication of a wise use of credit?

A)Your checks are bouncing.
B)Collection agencies are calling you frequently.
C)There are no pending charges on your credit cards.
D)You have no cash reserves and must borrow for incidentals.
E)You have missed a few loan payments.

Question 50

_____ cards offer the cardholder a way to contribute to a worthy cause and are sometimes described as "credit cards with a cause."

A)Student
B)Debit
C)Credit
D)Affinity
E)Rebate

Question 51

As a percent of take-home pay,monthly consumer credit payments should not exceed _____.

A)25%
B)20%
C)15%
D)10%
E)5%

Question 52

Which of the following is an improper use of credit?

A)Buying a home
B)Buying a short-lived good
C)Spreading payments within a budget
D)Purchasing a big-ticket item
E)Meeting a financial emergency

Question 53

Persons with very poor credit ratings can still get _____ credit cards.

A)secured
B)reward
C)prestige
D)affinity
E)retail

Question 54

Which of the following is a preferred use of a credit card?

A)Weekly purchase of food
B)Monthly payment of utility bills
C)Regular payment of small cash outlays
D)Always for impulse purchases
E)Occasionally for convenience

Question 55

Which of the following is the correct expression for calculating the debt safety ratio?

A)Total monthly consumer credit payments / Monthly take-home pay
B)Monthly take-home pay / Total monthly consumer credit payments
C)Total monthly consumer credit payments / Gross monthly pay
D)Gross monthly pay / Total monthly consumer credit payments
E)Gross monthly pay / Monthly take-home pay

Question 56

Which of the following statements is true about the cash advances that the holder of a bank credit card can obtain from participating banks?

A)Cash advances are loans on which interest begins to accrue only when the borrower uses them to make purchases.
B)Cash advances without any limits can be withdrawn from an ATM using credit cards.
C)Cash advances obtained from the teller window at a bank are limited by the unused credit in the borrower's account.
D)Cash advances obtained on credit cards are secured by participating banks.
E)Cash advances are loans obtained from an ATM using credit cards that do not allow merchandise purchases.

Question 57

To establish creditworthiness and to have a good credit score,one should probably first:

A)open savings and checking accounts.
B)use credit extensively.
C)arrange for a small loan.
D)pay cash for all purchases.
E)arrange for a large loan from close relatives.

Question 58

Which of the following forms of consumer credit is the cheapest and offers tax shelters?

A)Overdraft protection lines
B)Home equity credit lines
C)Credit cards
D)Unsecured personal credit
E)The Wage Earner Plan

Question 59

_____ is a benefit of using credit cards.

A)Being able to increase disposable income
B)Being able to provide payments for living beyond one's means
C)Being able to make impulse purchases
D)Greater affordability for a luxurious lifestyle
E)Being able to meet a financial emergency

Question 60

Which of the following cards provides direct access to your checking account?

A)Retail charge cards
B)Affinity cards
C)Student credit cards
D)Reward cards
E)Bank debit cards

Question 61

Which of the following cards is issued as a form of credit by department stores and oil companies?

A)A debit card
B)A student credit card
C)A retail charge card
D)An affinity card
E)A reward card

Question 62

Any credit card purchase will effectively be an interest-free loan if you:

A)pay for the purchase within six months.
B)make the minimum payment.
C)pay off the entire balance on or before the due date.
D)pay off the previous balance by the due date.
E)receive a cash advance.

Question 63

Which of the following is not essential when a lender analyzes the creditworthiness of a borrower?

A)Personal or family matters
B)Housing
C)Employment
D)Income
E)Lifestyle

Question 64

A person who pays off the total outstanding balance on his credit card monthly would prefer a credit card with:

A)a low required minimum payment percentage.
B)a high interest rate.
C)high over-the-limit fees.
D)no grace period.
E)no annual fee.

Question 65

Which of the following does a lender look at before granting credit to a borrower?

A)The political interests of the borrower
B)The friend circle of the borrower
C)The age of the borrower
D)The religious affiliations of the borrower
E)The lifestyle of the borrower

Question 66

Sheldon has a home valued at $108,000 with an outstanding mortgage of $70,000.If his lender is willing to provide a home equity loan of up to 80% of the market value of his home,how much can Sheldon borrow using a home equity loan?

A)$86,400
B)$80,000
C)$38,000
D)$30,400
E)$16,400

Question 67

A payment made using _____ is equivalent to paying by cash.

A)a retail credit card
B)a debit card
C)an affinity card
D)a reward card
E)a student credit card

Question 68

The finance charges on two credit cards with the same stated annual percentage rate (APR):

A)will always be the same.
B)will be the same as the interest rate is calculated as defined by federal law.
C)will be determined by the types of credit cards used.
D)will be determined by the methods used to calculate balances.
E)will be decided by credit bureaus.

Question 69

Russ and Lois have a home valued at $96,000 with an outstanding mortgage of $60,000.If their lender is willing to provide a home equity loan of up to 75% of the market value of the home,how much can they borrow using a home equity loan?

A)$0
B)$12,000
C)$27,000
D)$28,000
E)$36,000

Question 70

Consumer credit has become a popular way of making routine purchases because:

A)individuals can restrict their spending.
B)taking more credit will increase consumers' credit scores.
C)the availability of different types of credit is abundant.
D)consumer credit cannot be used for emergencies.
E)no interest is charged when credit is used for large outlays.

Question 71

A(n)_____ is an agency that provides credit information about individual borrowers to lenders.

A)credit bureau
B)consumer bureau
C)insurance company
D)bank
E)credit scoring house

Question 72

James finds it difficult to manage credit but wants the convenience of using a credit card.He wants to get a card that will provide direct access to his checking account.James should get a _____.

A)retail charge card
B)gift card
C)student credit card
D)debit card
E)membership card

Question 73

Which of the following is true about credit scoring systems?

A)Lower credit scores are better than higher credit scores.
B)The whole credit scoring system is based on extensive statistical studies.
C)Credit unions calculate and sell credit scores to lenders.
D)Females receive higher credit scores than males.
E)The stronger the personal traits of a person,the lower his or her credit score is.

Question 74

If the information in an individual borrower's credit report is in dispute,he or she is entitled to:

A)correct it.
B)sue the credit bureau.
C)erase it.
D)request a copy of the corrected file.
E)withdraw from the credit bureau.

Question 75

Which of the following calculation methods would produce more interest income for a person who uses his or her credit card very frequently?

A)Average daily balance including new purchases
B)Effective daily balance excluding new purchases
C)Two-cycle average daily balance including new purchases
D)Double declining average daily balance excluding new purchases
E)Annual percentage rate method including new purchases

Question 76

Ann Marie accumulated a large balance on her credit card while in college.She is trying to pay it off as quickly as possible and wants to roll the balance onto a new credit card.She now uses a credit card only for emergencies.What should Ann Marie look for in a credit card given the large balance and the way she plans to use the card?

A)A low annual fee
B)A low annual percentage rate
C)A long grace period
D)The average daily balance method excluding purchases
E)The two-cycle average daily balance method

Question 77

Anna uses her credit card regularly,but she pays off her total outstanding balance monthly.Anna should look for a credit card with:

A)no reward points.
B)low interest rates.
C)no grace period.
D)no rebate programs.
E)no annual fees.

Question 78

William uses his bank credit card frequently; however,he always pays off the total outstanding balance on the card each month.What should William look for in a credit card given the way he uses one?

A)A low annual fee and a short grace period
B)A low annual fee and a low interest rate
C)No annual fee and a short grace period
D)No annual fee and a long grace period
E)A high annual fee and a low interest rate

Question 79

Retail charge cards are advantageous to merchants because:

A)they help the merchants get loans.
B)they help build consumer loyalty.
C)they help the merchants file for bankruptcy.
D)they help the merchants save taxes.
E)they help the merchants give loans to their suppliers.

Question 80

Which of the following can be excluded from a monthly credit card statement?

A)The size of the payment
B)The payment due date
C)The type of goods purchased
D)The annual percentage rate
E)Finance charges,if any