Deck 8: Managing Your Credit

Question 1

One advantage of using a credit card is that you receive a list of your purchases,which enables you to keep track of your spending.

Answer 1

True

Question 2

An alternative to MasterCard,Visa,and American Express credit cards is a retail or proprietary card that is issued for use at a specific retail establishment.

Answer 2

True

Question 3

It is not difficult to find a credit card company that is eager to extend credit to you.

Answer 3

True

Question 4

A disadvantage to credit cards is that there is no way to keep track of individual expenditures.

Question 5

One advantage of credit cards is that you can receive free financing if you pay off your balance each month.

Question 6

Credit cards are commonly used for purchases such as clothing,car repairs,or the purchase of a new car.

Question 7

The annual percentage rate (APR)on credit is the simple interest rate after including any fees (such as an application processing fee)imposed by the creditor.

Question 8

MasterCard,Visa,and American Express credit cards all allow you to pay only a portion of your amount due and finance the remainder from month to month.

Question 9

One disadvantage of a proprietary credit card is that it limits your purchases to a single merchant.

Question 10

Credit limits may be as high as $10,000 for those credit card holders who have an exceptional credit history.

Question 11

Because of the short-term nature of credit card lending,the condition of the economy is not considered.

Question 12

One of the disadvantages of credit cards is that they allow you to spend beyond your means.

Question 13

Advantages of using credit include the ability to make purchases when cash inflow is low and the convenience of not carrying cash or checks.

Question 14

MasterCard and Visa are not accepted by gas stations such as Shell,which issue their own credit cards.

Question 15

Credit cards can eliminate the need for carrying large amounts of cash.

Question 16

There is no cost to the merchant when you use a MasterCard or Visa.

Question 17

Creditors are willing to extend credit when the economy is weak to stimulate purchases.

Question 18

When applying for a credit card,the amount of savings that you have will not be a factor in the credit card company's decision.

Question 19

Financial institutions issuing MasterCards and Visas typically earn a high rate of interest on the credit extended.

Question 20

The annual percentage rate (APR)is useful because it allows you to easily compare financing costs among various possible creditors.

Question 21

APR means

A)actual percentage rate.
B)applied percentage rate.
C)annual percentage rate.
D)all-banks percentage rate.

Question 22

Which of the following personal information would not be asked on a credit card application?

A)Cash inflows
B)Country of birth
C)Capital and collateral
D)Cash outflows

Question 23

If a credit card has a provision allowing you to make purchases beyond the stated credit limit,it is referred to as

A)purchase protection plan.
B)overdraft protection.
C)grace period.
D)first forgiveness provision.

Question 24

Some credit cards offer card users cash rewards if they exceed a certain spending level each month.

Question 25

In applying for a credit card,the potential creditor will look at which of the following as a source of future debt payments if necessary?

A)Cash outflows
B)Credit history
C)Potential inheritances
D)Balances in savings accounts

Question 26

There are many incentives,such as discounts and bonuses,offered by credit card companies to get you to use their cards.

Question 27

Jill just borrowed $6,000 and will be charged a simple interest rate of 12 percent.Jill will pay ________ interest for borrowing the money on September 1 and repaying the money on December 31.

A)$240
B)$420
C)$720
D)$1,200

Question 28

The easiest way to establish credit is to

A)purchase a new car with a car loan.
B)purchase a house with a mortgage.
C)apply for a credit card.
D)pay cash for all your purchases.

Question 29

Credit cards are generally used for such purchases as

A)cars.
B)homes.
C)meals,clothing,and groceries.
D)stocks.

Question 30

The interest charged on purchases and cash advances on credit cards is computed in the same way.

Question 31

Credit cards have all of the following advantages except

A)they allow you to borrow cash interest free for 60 days.
B)make purchases without carrying cash.
C)obtain free financing until the bill is due.
D)itemized monthly statement.

Question 32

The annual percentage rate (APR)is all of the following except

A)a simple interest rate for borrowing money for a year.
B)it requires a complex formula to compute.
C)it includes fees such as application processing fees.
D)it allows easy comparison of financing costs among various creditors.

Question 33

Some credit card companies will waive the annual fee on a credit card if

A)you use the card infrequently.
B)you carry a large balance from month to month.
C)you pay your bills in a timely manner.
D)Credit card companies never waive annual fees.

Question 34

Prestige cards (gold or platinum cards)always charge a higher annual fee,but offer extra benefits such as free insurance on rental cars or special warranties on purchases.

Question 35

Which of the following is not a method for computing interest on credit cards?

A)Previous balance method
B)Average daily balance method
C)Present value of future payment method
D)Adjusted balance method

Question 36

Cash advances on credit cards normally cost you interest from the date of the advance and also a transaction fee of 1 to 2 percent.

Question 37

If you pay your total credit card amount before the grace period,you are not normally charged any interest.

Question 38

Credit cards with a tiered interest rate charge cardholders who

A)carry large balances a lower rate.
B)pay off their balance monthly a higher rate.
C)make early payments a higher rate.
D)make late payments a higher rate.

Question 39

Which of the following personal information should not be asked on a credit card application?

A)Stocks and bonds owned
B)Income of parents
C)Employment history
D)Expenses and commitments

Question 40

A credit card whose interest rate changes as a specific market interest rate changes is said to have a

A)variable rate.
B)fixed rate.
C)constant rate.
D)tiered rate.

Question 41

Which of the following is not a method by which financial institutions calculate finance charges on credit cards?

A)Previous balance method
B)Ending balance method
C)Average daily balance method
D)Adjusted balance method

Question 42

Sandy had a beginning balance on her MasterCard statement of $300.This month she had purchases of $400,payments of $300,and a $100 cash advance.To avoid interest charges,Sandy must make a payment of

A)$400.
B)$500.
C)$100.
D)Sandy cannot avoid interest charges.

Question 43

By reviewing your credit card statement,you can determine all of the following except

A)total purchases made year-to-date.
B)your available credit remaining.
C)if a payment can be made that will avoid interest charges.
D)how much time you have to make a payment.

Question 44

All of the following are disadvantages of having proprietary credit cards except

A)your purchases are limited to a single merchant per card.
B)you may need several credit cards.
C)you receive several billing statements.
D)it takes considerable time to process your application to allow you to begin obtaining credit.

Question 45

In securing a credit card you should try to obtain

A)the highest maximum limit possible.
B)a maximum limit high enough to cover necessary monthly purchases.
C)a maximum limit high enough to cover anything you might wish to purchase.
D)the lowest maximum limit possible to restrict your usage.

Question 46

On a credit card,a finance charge is applied to

A)any purchase.
B)any balance not previously paid.
C)current purchases.
D)future purchases.

Question 47

All of the following are true of the grace period on credit cards except it

A)is usually about 20 days.
B)applies only to cash advances.
C)is the time in between the time the statement is "closed" and the time the bill is due.
D)amounts to free credit time.

Question 48

The ________ method charges interest based on the balance at the beginning of the new billing period.

A)new cycle
B)adjusted balance
C)average daily balance
D)previous balance

Question 49

In comparing credit cards,which of the following is false?

A)Some cards are more widely accepted than others
B)Some cards offer a teaser interest rate
C)Some charge an annual fee and others do not
D)Some cards allow you to carry a balance from month-to-month with no interest

Question 50

New regulations that provide clearer and more favorable financing rules for individual credit card users do all of the following except

A)prohibit interest rate increases if you miss a payment on another credit card.
B)cap the amount of any increase to 5%.
C)require a 45 day notice of any credit card interest rate increase.
D)prohibit the rate on existing credit card balances from being increased unless you are at least 60 days late on payments

Question 51

Which of the following may not be a feature of some credit cards?

A)Credit limits
B)Annual fees
C)Grace periods
D)Cash advances

Question 52

Which of the following methods of calculating finance charges on credit cards is least favorable to the cardholder?

A)Previous balance method
B)Ending balance method
C)Average daily balance method
D)Adjusted balance method

Question 53

A credit card statement does not contain which of the following?

A)Previous balance
B)Current balance
C)Account number
D)Who purchased the item

Question 54

Which credit card requires full payment each month?

A)MasterCard
B)Visa
C)American Express
D)A proprietary card

Question 55

Cash advances are

A)a good way to finance your purchases.
B)cheaper than a line of credit.
C)not shown on the credit card statement.
D)easy to make at an ATM machine.

Question 56

Which of the following is not correct about cash advances?

A)There is no grace period for cash advances.
B)The interest rate for cash advances is higher than for purchases.
C)A cash advance is like a loan.
D)A transaction fee of 5 percent may be charged.

Question 57

On your credit card statement,the amount that you owe the financial institution now is called the

A)previous balance.
B)minimum payment.
C)new balance.
D)payments.

Question 58

Which of the following is not true about annual fees on credit cards?

A)The fees are the same on all credit cards
B)The fees may be high,up to $70 per year
C)Many cards do not have annual fees
D)Some cards may waive the fees for individuals who pay their credit card bills in a timely manner

Question 59

Which of the following is not true regarding cash advances on credit cards?

A)They are treated just like other charges on your credit card.
B)There is a charge for interest from the time you take the advance to the time you pay it off.
C)There is also a transaction fee on most cash advances.
D)The grace period does not apply to cash advances.

Question 60

All of the following are true of prestige credit cards except they

A)always have considerably higher annual fees.
B)are sometimes referred to as gold or platinum cards.
C)provide extra benefits to cardholders.
D)are given to individuals who have an exceptional credit standing.

Question 61

It is good financial planning to pay only the minimum credit card payment and thus maintain a balance since interest rates are low on credit cards.

Question 62

If you have an exceptional credit standing,the company issuing your credit card may upgrade you to what are called ________.

Question 63

Compute the new balance on a credit card assuming that:
-Beginning balance = $450
-Purchases during the month = $300
-Payments made within the grace period = $250
-Interest rate = 18%
(a)$550
(b)$503
(c)$516
(d)$1,000

Question 64

If you borrowed $8,700 at 6 percent for one year,what would your total interest be if you are charged simple interest?
(a)$600
(b)$9,222
(c)$522
(d)$600

Question 65

The ________ is usually about 20 days after the credit card statement is closed.

Question 66

Of the three methods by which finance charges may be calculated on outstanding credit card balances,the least favorable to the cardholder is the ________ balance method.

Question 67

You have a credit card on which your beginning balance for the month was $400.On the 10th of the month you took out a cash advance of $500.During the month you made purchases of $250.Assuming that the interest rate on purchases is 15 percent (1.25 percent per month),cash advances is 18 percent (1.5 percent per month),and there is a 1 percent fee on all cash advances,what would you have to pay to pay off your account if your due date is the 30th of the month.
(a)$1,165
(b)$1,222.50
(c)$1,305
(d)$1,342.50

Question 68

You are considering applying for one of two credit cards.Credit card "A" has an annual fee of $30 and charges interest of 10 percent.Credit card "B" has no annual fee,but charges an interest rate of 15 percent.If you carry an average balance of $500 on your credit card,the lowest total annual expenses you could have with one of these two credit cards would be:
(a)$50
(b)$80
(c)$75
(d)$90

Question 69

In comparing credit cards to other forms of credit,which of the following is false?

A)Credit cards are generally the most expensive form of credit.
B)You should pay the most expensive debt off first.
C)Credit cards can be viewed as a source of funds.
D)A home equity loan is a way of combining credit card and other debt.

Question 70

Because credit card interest rates are usually quite high,you should pay off your credit card balances before you invest funds anywhere else.

Question 71

Describe the availability of credit today for a person over 18 years of age.Do you get credit card offers in the mail and are discounts available when signing up for a proprietary credit card?

Question 72

In comparing credit cards to other forms of credit,which of the following is true?

A)Credit cards are generally the most expensive form of credit
B)You should invest funds before paying off your credit cards
C)It is prudent to borrow from some cards to pay off other credit cards
D)All of the above

Question 73

For good financial management,you should treat a credit card as

A)a source of funds.
B)a means of convenience.
C)a way to finance everything.
D)an inexpensive form of financing.

Question 74

If you include all fees charged by a lender and the simple interest rate,the result will be the ________.

Question 75

A credit card that can only be used in establishments of the issuer is called a(n)________ credit card.

Question 76

Even if you cannot pay your credit card bill in full,you should still attempt to pay as much as possible so that you can minimize finance charges.

Question 77

Assuming you were charged simple interest on a loan of $4,900 which requires you to repay in one year $5,292,what rate of interest would you be charged? (Round interest rate to the nearest hundredth percent if necessary.)
(a)9.26%
(b)8%
(c)7.41%
(d)11%

Question 78

In applying for a credit card,the potential creditor will look at your ________ to determine if you have funds to cover future debt payments if necessary.

Question 79

Describe the advantages and disadvantages of credit cards.

Question 80

To properly manage your money you should use a credit card only if you will have the cash to cover the payment when you receive your credit card statement.