Deck 5: Consumer Credit: Advantages, Disadvantages, Sources, and Costs

Question 1

The information gathered from your loan application and the credit bureau establishes your credit rating.

Answer 1

True

Question 2

Researchers have discovered a link between credit scores and impatience.

Answer 2

True

Question 3

Many people use credit to live within their means.

Answer 3

False

Question 4

A trade-off of using credit is that it increases the amount of money that will be available to spend in the future.

Question 5

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

Question 6

A consumer applies for open-end credit to make a single purchase, such as a large appliance.

Question 7

Consumer credit may allow businesses to be more efficient or more productive.

Question 8

Economists recognize consumer credit as a major force in the American economy.

Question 9

Consumer credit dates back to colonial times where farmers came to use it extensively .

Question 10

Credit can indicate stability since lenders consider you a good risk.

Question 11

Using the simple interest formula, the interest on a $1,000 loan at 5% interest for one year is $55.

Question 12

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

Question 13

Open-end credit consists of loans made on a continuous basis with periodic bills for at least partial payment.

Question 14

A disadvantage of using credit is the convenience it offers when making a hotel reservation or renting a car.

Question 15

During the grace period, finance charges are assessed at only half the normal rate.

Question 16

Although credit allows immediate satisfaction of needs and desires, a greater advantage is that it increases total purchasing power.

Question 17

When used effectively, credit can help a consumer have more and enjoy more.

Question 18

Consumer credit refers to the use of debit cards for personal needs.

Question 19

You can lend money to micro-entrepreneurs through Kiva.org, a micro-lending website.

Question 20

Closed-end credit consists of loans made on a continuous basis with periodic bills for at least partial payment.

Question 21

The Fair Credit Reporting Act, enacted in 1971, places limits on who can obtain your credit report.

Question 22

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

Question 23

FICO and VantageScore are two scores used by creditors to predict how likely it is that you will repay a loan.

Question 24

In the five Cs of credit, conditions refer to what will happen if the borrower does not repay the loan.

Question 25

Most information in your credit file (except bankruptcies) may be reported for only 7 years.

Question 26

The most expensive loans are often provided by parents or other family members.

Question 27

The higher your FICO score, the more risk you pose to creditors.

Question 28

The Equal Credit Opportunity Act requires that a creditor not turn you down for credit based on your age as long as you are old enough to sign a legal contract, which is usually allowed at age 16.

Question 29

A credit file can include your spouse's name and Social Security number.

Question 30

In the five Cs of credit, capacity refers to the borrower's trustworthiness and stability.

Question 31

A credit card holder who pays the full balance during the grace period each month is actually getting a free loan from the credit card company.

Question 32

The least expensive loans (loans with low interest) are often provided by parents or other family members.

Question 33

A secured credit card is most appropriate for someone with a strong credit history .

Question 34

FICO is a better score to use than VantageScore for consumers with limited credit histories.

Question 35

Interest paid on a credit card is tax-deductible.

Question 36

Experts suggest that you spend more than 20% of your net (after-tax) income on consumer credit payments.

Question 37

In the five Cs of credit, capital refers to the borrower's ability to pay additional debts.

Question 38

In the five Cs of credit, character refers to the borrower's trustworthiness and stability.

Question 39

A personal bankruptcy remains on a credit file for no more than 5 years.

Question 40

The easiest loans to obtain are also the least expensive.

Question 41

The longer the term for a loan at a given interest rate, the greater the amount you must pay in interest charges.

Question 42

The Truth in Lending Act requires that open-end creditors explain how they calculate the finance charge.

Question 43

Installment credit, in which the debt is repaid in equal installments over a specified period of time, exploded on the American scene with the advent of the

A) Airplane
B) Automobile
C) Cell phone
D) Computer
E) Train

Question 44

According to the Fair Credit Billing Act of 1975, a creditor must adjust the disputed amount in your account or tell you why the bill is correct within 30 days.

Question 45

According to law, a creditor may threaten your credit rating while you are negotiating a billing dispute.

Question 46

According to the Fair Credit Billing Act of 1975, a consumer may tell a credit card company to stop payment for a defective good if the consumer has made a sincere attempt to resolve the problem with the store.

Question 47

You have a legal right to sue a credit bureau if you observe an error in your file.

Question 48

If you purchase something with a credit card, the finance charges you pay on an item could end up being more than the item is worth.

Question 49

To protect your credit card, you should keep a record of your credit card number separate from your card.

Question 50

The amount of interest paid on a bill is not related to the length of the loan.

Question 51

You may not know that your identity has been stolen until you get bills for a credit card account that you never opened.

Question 52

The annual percentage rate is lower than the stated rate for loans that are repaid in monthly payments.

Question 53

Many people expect

A) Their ability to make payments to get harder over time.
B) Their incomes to increase to make it easier to make payments on past credit purchases.
C) Using credit will increase the amount of money available to spend in the future.
D) Their interest payments to increase as their credit balances decrease.
E) All of the above.

Question 54

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made it easier for consumers to file Chapter 7 bankruptcy.

Question 55

If you are a cosigner for a loan and the debt is not repaid, that fact will appear on your credit report.

Question 56

The longer it takes for you to pay off a bill, the less interest you pay.

Question 57

The expected rate of inflation should not be considered when determining the amount of interest a lendor should charge.

Question 58

Which of the following is NOT a valid reason for borrowing?

A) Borrowing for a college education.
B) Paying for everyday living expenses.
C) Buying a car so a homemaker can return to work.
D) Paying for a medical emergency.
E) All of these are valid reasons for borrowing.

Question 59

The add-on interest calculation uses this formula: Interest = Principal × Rate of interest × Time.

Question 60

Which of the following is a valid reason for using credit?

A) Purchasing a car so a homemaker can return to work
B) Borrowing for a college education
C) Purchasing an item that costs less now than it will later
D) Paying for a medical emergency
E) All of these are valid reasons for borrowing

Question 61

Which of the following is an example of closed-end credit?

A) A mortgage loan.
B) A department store credit card.
C) Overdraft protection.
D) Travel and entertainment cards
E) All of these are examples of closed-end credit.

Question 62

A cash advance

A) Involves a grace perod on most cards
B) Is less expensive than charging a purchase to your credit card
C) On some cards has a lower interest rate than on purchases
D) Requires you to pay interest every day until you repay the cash advance
E) Is a loan billed to your bank account.

Question 63

Molly purchased a $1,500 dishwasher from Best Appliances. She will make 12 equal payments over the next year to pay for it. She is using

A) Closed-end credit.
B) Open-end credit.
C) Revolving check credit.
D) A line of credit.
E) None of these.

Question 64

Which of the following is NOT correct?

A) Using credit permits the purchase of goods even when funds are low
B) Using credit can decrease the amount of money that will be available to spend in the future.
C) Using credit offers convenience when shopping on the Internet.
D) Using credit cards typically provides a "float" of up to 10 days.
E) Using credit allows a consumer to shop without carrying a large amount of cash.

Question 65

The periodic charge for the use of credit is called

A) A line of credit.
B) A revolving check credit.
C) Interest.
D) A grace period.
E) Principal.

Question 66

A loan that must be repaid in total on a specified day, usually within 30 to 90 days, is

A) A credit card.
B) An installment cash credit.
C) A bank line of credit.
D) Open-end credit.
E) Single lump-sum credit.

Question 67

When misused , credit can result in

A) Default.
B) Bankruptcy.
C) Loss of creditworthiness.
D) A less satisfying life.
E) All of the above.

Question 68

Which of the following is an example of open-end credit?

A) An automobile loan
B) A department store credit card
C) An installment loan for purchasing furniture
D) A mortgage loan
E) Single lump-sum credit

Question 69

Before buying goods and services on credit, a consumer should consider all of the following except

A) Whether purchasing now will increase efficiency
B) Whether purchasing now will increase productivity
C) Whether purchasing now will result in a more satisfying life
D) Whether the benefits of purchasing now will outweigh the costs
E) Whether the good or service will be worth more because it was purchased with credit instead of cash.

Question 70

A prearranged loan for a specified amount that a consumer can use by writing a special check is known as

A) A bank credit card.
B) A revolving check credit.
C) Installment sales credit.
D) Single lump-sum credit.
E) Closed-end credit.

Question 71

Home equity loans should be used for

A) Buying dinner at a restaurant.
B) Borrowing money for impulse purchases.
C) Major expenses such as home improvements or education.
D) Getting cash for weekend entertainment.
E) Selling a car.

Question 72

Which of the following is NOT correct?

A) Using credit is appropriate to pay for medical emergencies.
B) Using credit can increase the amount of money that will be available to spend in the future.
C) Using credit occurs when you use water or electricity
D) Using credit cards usually makes returning merchandise without a receipt easier.
E) Using credit allows consumers to enjoy goods and services now and pay later.

Question 73

Which of the following questions is NOT needed before deciding how and when to make a major purchase?

A) Do I have the cash I need for the down payment?
B) Does the purchase fit my budget?
C) Could I postpone the purchase?
D) Could I use the credit I need for this purchase in some better way?
E) All of these questions should be considered

Question 74

A typical grace period offered by many credit card issuers is

A) 0-10 days.
B) 10-20 days.
C) 20-25 days.
D) 30-40 days.
E) 45-60 days.

Question 75

Consumer credit

A) Is only a privilege of the affluent.
B) Dates back to colonial times.
C) Has been declining since the 1900s.
D) Is not a major force in our economy.
E) Is currently only used by farmers

Question 76

A line of credit is

A) The equal payments required for one-time loans.
B) The loan amount for installment cash credit.
C) The maximum loan amount for closed-end credit.
D) The maximum dollar amount of credit the lender has made available to a borrower.
E) The monthly payment required for single lump-sum credit.

Question 77

Perhaps the greatest disadvantage of using credit is

A) The temptation to overspend.
B) The convenience offered instead of using cash.
C) The float from using credit.
D) The increase in total purchasing power.
E) The increased satisfaction during present and future income periods.

Question 78

Which of the following can result from a failure to repay a loan?

A) Bankruptcy.
B) Loss of income or valuable property.
C) Loss of a good reputation.
D) Damage to family relationships.
E) All of the above may result from the failure to repay a loan.

Question 79

A direct loan for personal purposes, home improvements, or vacation expenses is called

A) A credit card.
B) An installment cash credit.
C) A bank line of credit.
D) Open-end credit.
E) Single lump-sum credit.

Question 80

Which of the following is often considered to offer the least expensive loans (loans with low interest)?

A) Banks.
B) Finance companies.
C) Loan companies.
D) Parents or family members.
E) Savings and loan associations.