FINC298 Chap 005 Practive Quiz

Chapter 05 - Consumer Credit: Advantages, Disadvantages, Sources, and Costs
Chapter 05
Consumer Credit: Advantages, Disadvantages, Sources, and Costs

True / False Questions

1. (p. 143) Consumer credit refers to the use of debit cards for personal needs.
FALS
Consumer credit refers to the use of credit.

Bloom's: Knowledge
Difficulty: Easy
earning !"#ecti$e: 1
%opic: &onsumer credit

. (p. 143) Consumer credit dates bac! to colonial times "hen it "as e#tensivel$ used b$
farmers.
T!"

Bloom's: Knowledge
Difficulty: Easy

%. (p. 143) Consumer credit allo"s businesses to be more efficient or more productive.
FALS
Consumer credit allo"s consumers to be more efficient.

Bloom's: Knowledge
Difficulty: 'edium

&. (p. 143) 'conomists recogni(e consumer credit as a ma)or force in the American econom$.
T!"
5-1

Bloom's: Knowledge
Difficulty: Easy

5. (p. 144) *hen used effectivel$, credit can help a consumer have more and en)o$ more.
T!"

Bloom's: Knowledge
Difficulty: Easy

+. (p. 144) A trade off of credit is that it increases the amount of mone$ that "ill be available to
spend in the future.
FALS
Credit decreases the amount of mone$ that "ill be available in the future.

Bloom's: Knowledge
Difficulty: 'edium

,. (p. 144) A disadvantage of using credit is its use "hen ma!ing a hotel reservation.
FALS
Credit offers the convenience to ma!e a hotel reservation.

Bloom's: Knowledge
Difficulty: Easy
%opic: (d$antages of credit

5-
-. (p. 14)) During the grace period, finance charges are assessed at onl$ half the normal rate.
FALS
.inance charges are not assessed during the grace period.

Bloom's: Knowledge
Difficulty: Easy

/. (p. 14)) Credit can indicate stabilit$ since lenders consider $ou a good ris!.
T!"

Bloom's: Knowledge
Difficulty: Easy

10. (p. 14)) Although credit allo"s immediate satisfaction of needs and desires, a greater
advantage is that it increases total purchasing po"er.
FALS
Credit does not increase total purchasing po"er.

Bloom's: &ompre*ension
Difficulty: 'edium
%opic: Disad$antages of credit

11. (p. 14+) Closed-end credit consists of loans made on a continuous basis "ith periodic bills
for at least partial pa$ment.
FALS
Definition is for open-end credit.

Bloom's: Knowledge
Difficulty: Easy
earning !"#ecti$e: ,
%opic: %ypes of credit

5-%
1. (p. 14+) 0pen-end credit consists of loans made on a continuous basis "ith periodic bills for
at least partial pa$ment.
T!"

Bloom's: Knowledge
Difficulty: Easy

1%. (p. 14+) Closed-end credit is used for a specific purpose and involves a specific amount.
T!"

Bloom's: Knowledge
Difficulty: 'edium

1&. (p. 14-) 1nstallment sales credit is a loan that allo"s a consumer to purchase high-priced
items.
T!"

Bloom's: Knowledge
Difficulty: Easy

15. (p. 14-) A consumer applies for open-end credit to ma!e a single purchase, such as a large
appliance.
FALS
0pen-end credit does not re2uire an application for each purchase.

Difficulty: 'edium

5-&
1+. (p. 14.) 3he least e#pensive loans are often provided b$ parents or other famil$ members.
T!"

Bloom's: Knowledge
Difficulty: Easy
%opic: oans

1,. (p. 14.) 3he most e#pensive loans are often provided b$ parents or other famil$ members.
FALS
3hese are the least e#pensive loans.

Bloom's: Knowledge
Difficulty: Easy
%opic: oans

1-. (p. 14.) 3he easiest loans to obtain are also the least e#pensive.
FALS
3he easiest loans are also the most e#pensive.

Bloom's: Knowledge
Difficulty: 'edium
%opic: oans

1/. (p. 1)/) 1nterest paid on a credit card is ta#-deductible.
FALS
1nterest on home e2uit$ loans is ta# deductible.

Difficulty: 'edium
%opic: oans

5-5
0. (p. 1)1) A credit card holder "ho pa$s the full balance during the grace period each month is
actuall$ getting a free loan from the credit card compan$.
T!"

Difficulty: 'edium
%opic: &redit cards

1. (p. 1)1) A secured credit card is most appropriate for someone "ith a strong credit
bac!ground.
FALS
3his t$pe of card "ould be most appropriate for someone "ith a bad credit histor$.

Difficulty: Easy
%opic: &redit cards

. (p. 1)4) '#perts suggest that $ou spend more than 0 percent of $our after-ta# 4net5 income
on consumer credit pa$ments.
FALS

Difficulty: 'edium
%opic: &redit capacity

%. (p. 1)4) 3he debt-to-e2uit$ ratio is calculated b$ dividing $our total liabilities, including
mortgage, b$ net "orth.
FALS
3he ratio e#cludes mortgage.

Difficulty: 'edium

5-+
&. (p. 1)4) 1n the five Cs of credit, character refers to the borro"er6s trust"orthiness and
stabilit$.
T!"

Bloom's: Knowledge
Difficulty: 'edium
%opic: 0i$e &s of credit

5. (p. 1)4) 1n the five Cs of credit, capacit$ refers to the borro"er6s trust"orthiness and
stabilit$.
FALS
3his refers to character.

Bloom's: Knowledge
Difficulty: 'edium

+. (p. 1)4) 1n the five Cs of credit, capital refers to the borro"er6s abilit$ to pa$ additional
debts.
FALS
3his refers to capacit$.

Bloom's: Knowledge
Difficulty: 'edium

5-,
,. (p. 1)4) 1n the five Cs of credit, conditions refer to "hat "ill happen if the borro"er does not
repa$ the loan.
FALS
Conditions refer to general economic conditions that can affect a borro"er6s abilit$ to repa$ a
loan.

Bloom's: Knowledge
Difficulty: 'edium

5--
-. (p. 1).) 3he '2ual Credit 0pportunit$ Act re2uires that a lender not turn $ou do"n for credit
based on $our age as long as $ou are old enough to sign a legal contract, "hich is usuall$
allo"ed at age 1+.
FALS
3he age to sign a legal contract is usuall$ 1- - 1 $ears.

Difficulty: 1ard
%opic: &reditwort*iness

/. (p. 1)+) .1C0 and 7antageScore are t"o methods used to )udge credit"orthiness.
T!"

Bloom's: Knowledge
Difficulty: Easy

%0. (p. 1)+) .1C0 is a better score to use than 7antageScore for consumers "ith limited credit
histories.
FALS
7antageScore allo"s for a more predictive score for consumers, even for those "ith limited
credit histories.

Difficulty: 'edium

%1. (p. 1)+) 3he higher $our .1C0 score, the more ris! $ou pose to creditors.
FALS

Difficulty: Easy

5-/
%. (p. 1+/) A credit file can include $our spouse6s name and Social Securit$ number.
T!"

Bloom's: Knowledge
Difficulty: 'edium
%opic: &redit application

%%. (p. 1+/) 3he .air Credit 8eporting Act, enacted in 1/,1, places limits on "ho can obtain
$our credit report.
T!"

Bloom's: Knowledge
Difficulty: 'edium

%&. (p. 1+,) A ban!ruptc$ remains on a credit file for no more than 5 $ears.
FALS
9an!ruptcies remain on a credit file for 10 $ears.

Bloom's: Knowledge
Difficulty: Easy

%5. (p. 1+,) :ost information in $our credit file ma$ be reported for onl$ , $ears.
T!"
:ost information is removed after , $ears; ho"ever, ban!ruptcies remain on a credit file for
10 $ears.

Bloom's: Knowledge
Difficulty: Easy

5-10
%+. (p. 1+3) <ou have a legal right to sue a credit bureau if $ou observe an error in $our file.
FALS
<ou have a legal right to sue if the credit bureau has not follo"ed the rules established b$ the
.air Credit 8eporting Act.

Bloom's: Knowledge
Difficulty: 'edium

%,. (p. 1+3) 3he Annual =ercentage 8ate is lo"er than the stated rate for loans that are repaid in
monthl$ pa$ments.
FALS
3he A=8 for these loans is higher than the stated rate.

Difficulty: 1ard
%opic: &ost of credit

%-. (p. 1+3) 3he longer the term for a loan at a given interest rate, the higher the overall interest
charges.
T!"

Difficulty: 'edium

5-11
%/. (p. 1++) 3he add-on interest calculation uses the formula: 1nterest > =rincipal 8ate of
interest 3ime
FALS
3he formula is correct for Simple 1nterest.

Bloom's: Knowledge
Difficulty: 'edium

&0. (p. 1++) 3he amount of interest paid is independent of the length of the loan.
FALS
?onger loans re2uire more interest to be paid.

Difficulty: 'edium

&1. (p. 1+-) 3he 3ruth in ?ending Act re2uires that creditors e#plain ho" the$ calculate the
finance charge.
T!"

Bloom's: Knowledge
Difficulty: Easy

5-1
&. (p. 1+-) 3he e#pected rate of inflation should not be considered "hen determining the
amount of interest a creditor should charge.
FALS
?enders incorporate the e#pected rate of inflation "hen deciding ho" much interest to charge.

Difficulty: 'edium

&%. (p. 1+.) 3he longer it ta!es for $ou to pa$ off a bill, the less interest $ou pa$.
FALS
3he longer it ta!es to pa$, the more interest to be paid.

Difficulty: Easy

&&. (p. 1+.) 1f $ou purchase something "ith a credit card, the finance charges $ou pa$ on an item
could end up being more than the item is "orth.
T!"

Difficulty: 'edium

&5. (p. 1+2) According to la", a creditor ma$ threaten $our credit rating "hile $ou are
negotiating a billing dispute.
FALS
A creditor ma$ not threaten $our credit rating during this time.

Bloom's: Knowledge
Difficulty: Easy
earning !"#ecti$e: +
%opic: Billing errors and disputes

5-1%
&+. (p. 1+2) According to the .air Credit 9illing Act from 1/,5, a creditor must ad)ust the
disputed amount in $our account or tell $ou "h$ the bill is correct "ithin %0 da$s.
FALS
3he creditor must ta!e this action "ithin t"o billing periods, but not longer than /0 da$s.

Bloom's: Knowledge
Difficulty: 1ard
earning !"#ecti$e: )

&,. (p. 1+12) According to the .air Credit 9illing Act from 1/,5, a consumer ma$ tell his credit
card compan$ to stop pa$ment for a defective good if he made a sincere attempt to resolve the
problem "ith the store.
T!"

Bloom's: Knowledge
Difficulty: 'edium

&-. (p. 1-/) 3he first sign of stolen identit$ might be that $ou get bills for a credit card account
that $ou never opened.
T!"

Bloom's: Knowledge
Difficulty: Easy
%opic: 3dentity crisis

&/. (p. 1+,) 1f $ou are a cosigner for a loan and the debt is not repaid, then that fact "ill appear
on $our credit report.
T!"

Bloom's: Knowledge
Difficulty: 'edium
%opic: &osigning a loan

5-1&
50. (p. 1-1) <ou should !eep a record of $our credit card number separate from $our card.
T!"

Bloom's: Knowledge
Difficulty: 'edium

51. (p. 1-+) 3he 9an!ruptc$ Abuse =revention and Consumer =rotection Act of 005 made it
easier for consumers to file Chapter , ban!ruptc$.
FALS
3he ne" la" made it more difficult for consumers to file a Chapter , ban!ruptc$ and forces
them into a Chapter 1% repa$ment plan.

Bloom's: Knowledge
Difficulty: 'edium
%opic: Ban4ruptcy

#ultiple Choice Questions

5. (p. 144) 1nstallment credit e#ploded on the American scene "ith the advent of the
A. Airplane
$% Automobile
C. Cell phone
D. Computer
'. 3rain
1nstallment credit e#ploded on the American scene in the earl$ 1/00s.

Difficulty: 'edium

5-15
5%. (p. 144) *hich of the follo"ing e#pressions is correct@
A. As the A.S. econom$ goes, so goes the consumer.
9. As "orld politics go, so goes the consumer.
C% As the consumer goes, so goes the A.S. econom$.
D. As the consumer goes, so goes the ban!ing s$stem.
'. As the ban!ing s$stem goes, so goes business.

Bloom's: &ompre*ensions
Difficulty: 'edium

5&. (p. 144) *hich of the follo"ing is a valid reason for borro"ing@
A. =urchasing a ne" dish"asher
9. 9orro"ing for a college education
C. =urchasing a home
D. =a$ing for a medical emergenc$
% All of the above are valid reasons for borro"ing

Difficulty: 1ard

55. (p. 144) *hich of the follo"ing is B03 a valid reason for borro"ing@
A. =urchasing a ne" dish"asher
$% =a$ing for ever$da$ living e#penses
C. 9u$ing a car to start a ne" )ob
D. =a$ing for a medical emergenc$
'. All of the above are valid reasons for borro"ing

Difficulty: 'edium

5-1+
5+. (p. 14)) :an$ people e#pect
A. 3heir abilit$ to ma!e pa$ments to get harder over time
$% 3heir incomes to increase to ma!e it easier to ma!e pa$ments
C. 3heir interest rates to decrease as their credit balances decrease
D. 3heir interest pa$ments to increase as their credit balances decrease
'. 3heir household e#penses to be covered "ith their mortgage pa$ment

Difficulty: 'edium

5,. (p. 144) *hich of the follo"ing 2uestions is B03 needed before deciding ho" and "hen to
ma!e a ma)or purchase@
A. Do 1 have the cash 1 need for the do"n pa$ment@
9. Does the purchase fit m$ budget@
C. Could 1 postpone the purchase@
D. Could 1 use the credit 1 need for this purchase in some better "a$@
% All of the above are valid 2uestions to as!.

Bloom's: Knowledge
Difficulty: Easy

5-. (p. 144) *hen used effectivel$, credit can result in
A. Default
9. 9an!ruptc$
C. ?oss of credit"orthiness
D. .inancial loss
% 1mproved lifest$le

Bloom's: Knowledge
Difficulty: Easy

5-1,
5/. (p. 14/) *hich of the follo"ing is B03 correct@
A. Credit can result in a greater chance of ban!ruptc$.
9. Credit can decrease the amount of mone$ that "ill be available to spend in the future.
C. Credit offers convenience "hen shopping on the 1nternet.
D% Credit cards t$picall$ offer a CfloatC of up to 10 da$s.
'. Credit allo"s a consumer to shop "ithout carr$ing a large amount of cash.
Credit cards can provide a float up to 50 da$s.

Difficulty: 'edium

+0. (p. 14)) *hich of the follo"ing is B03 correct@
A. Credit is appropriate to pa$ for medical emergencies.
$% Credit can increase the amount of mone$ that "ill be available to spend in the future.
C. Credit sometimes occurs automaticall$, such as for telephone usage.
D. Credit usuall$ ma!es returning merchandise easier than returning cash purchases.
'. Credit allo"s consumers to en)o$ goods and services no" and pa$ later.

Difficulty: 'edium

+1. (p. 14)) A t$pical grace period for man$ credit card issuers is
A. 0 - 10 da$s
9. 10 - 0 da$s
C% 0 - 5 da$s
D. %0 - &0 da$s
'. &5 - +0 da$s

Bloom's: Knowledge
Difficulty: 'edium

5-1-
+. (p. 14)) :an$ thin! that perhaps the greatest disadvantage of using credit is
A% 3he temptation to overspend.
9. 3he convenience offered instead of using cash.
C. 3he float from using credit.
D. 3he lac! of an increase in total purchasing po"er.
'. 3he increased satisfaction during present and future income periods.
Although A, D and ' are disadvantages, the authors suggest that the greatest disadvantage is
A.

Difficulty: 1ard

+%. (p. 14)) .ailure to repa$ a loan ma$ lead to all e5cept:
A. 9an!ruptc$.
9. ?oss of income.
C. ?oss of a good reputation.
D. Damage to famil$ relationships.
% All of the ans"ers ma$ be a result of the failure to repa$ a loan.

Difficulty: 'edium

+&. (p. 14)) Consumer credit
A. 1s a privilege of the affluent.
$% Dates bac! to colonial times.
C. Carries no finance charge.
D. 1s not a ma)or force in our econom$.
'. Ase has been declining in recent $ears.

Difficulty: 'edium
%opic: &onsumer credit in our economy

5-1/
+5. (p. 14)) 9efore bu$ing goods and services on credit, a consumer should consider all e5cept:
A. *hether the$ "ill have lasting value
9. *hether the$ "ill increase personal satisfaction during present income periods
C. *hether the$ "ill increase personal satisfaction during future income periods
D. *hether current income "ill continue or increase
% *hether the good or service "ill be "orth more because the$ "ere purchased "ith credit
instead of cash

Difficulty: 'edium

++. (p. 14-) *hich of the follo"ing is an e#ample of closed-end credit@
A% :ortgage
9. Department store credit card
C. 0verdraft protection
D. ?ine of credit
'. All of the above are e#amples of closed-end credit

Bloom's: Knowledge
Difficulty: 'edium

+,. (p. 14-) *hich of the follo"ing is an e#ample of open-end credit@
A. Automobile loan
$% Department store credit card
C. 1nstallment loan for purchasing furniture
D. :ortgage
'. Single lump-sum credit

Bloom's: Knowledge
Difficulty: 'edium

5-0
+-. (p. 14-) A direct loan for personal purposes, home improvements or vacation e#penses is
called
A. Credit card
$% 1nstallment cash credit
C. ?ine of credit
D. 0pen-end credit
'. Single lump-sum credit

Difficulty: 'edium

+/. (p. 14-) A loan that must be repaid in total on a specified da$, usuall$ "ithin %0 to /0 da$s is
A. Credit card
9. 1nstallment cash credit
C. ?ine of credit
D. 0pen-end credit
% Single lump-sum credit

Difficulty: 'edium

,0. (p. 14-) :oll$ purchased a D1,500 ED37 from 9est Appliances. She "ill ma!e 1 e2ual
pa$ments over the ne#t $ear to pa$ for it. She is using
A% Closed-end credit
9. 0pen-end credit
C. 8evolving chec! credit
D. A line of credit
'. Bone of the above

Difficulty: 'edium

5-1
,1. (p. 14-) A line of credit is
A. 3he e2ual pa$ments re2uired for one-time loans
9. 3he loan amount for installment cash credit
C. 3he ma#imum loan amount for closed-end credit
D% 3he ma#imum dollar amount of credit the lender has made available
'. 3he monthl$ pa$ment re2uired for single lump-sum credit

Difficulty: 'edium

,. (p. 14-) A prearranged loan up to a specified amount that a consumer can access b$ "riting a
special chec! is !no"n as
A. 9an! credit card
$% 8evolving chec! credit
C. 1nstallment sales credit
D. Single lump-sum credit
'. Closed-end credit

Difficulty: 'edium

,%. (p. 14-) 3he periodic charge for the use of credit is
A. ?ine of credit
9. 8evolving chec! credit
C% 1nterest
D. Frace period
'. =rincipal

Bloom's: Knowledge
Difficulty: Easy

5-
,&. (p. 14.) *hich is often considered to offer the least e#pensive loans@
A. 9an!s
9. .inance companies
C. ?oan companies
D% =arents or famil$ members
'. Savings and loan associations

Bloom's: Knowledge
Difficulty: Easy
%opic: oans

,5. (p. 142) A cash advance
A. 1ncreases a borro"er6s credit limit
9. 1s the cheapest "a$ to obtain mone$ "hen a"a$ from home
C. Asuall$ is obtained from a ban!
D% Accrues interest charges beginning the da$ the cash advance is made
'. 1s ta# deductible

Difficulty: 1ard
%opic: oans

,+. (p. 1)/) Eome e2uit$ loans should be used for
A. 9u$ing dinner at a restaurant
9. 9orro"ing mone$ for impulse purchases
C% :a)or e#penses such as home improvements or education
D. Fetting cash for "ee!end entertainment
'. Selling a car

Difficulty: 'edium
%opic: oans

5-%
,,. (p. 1)/) Eome e2uit$ loans
A. Are based on the original purchase price of a home
$% Eave interest that is ta#-deductible
C. Do not have an$ securit$ attached to the loan
D. Eave a +0 da$ grace period
'. Are the most e#pensive loans available

Difficulty: 'edium
%opic: oans

,-. (p. 1)/) 1f $ou miss pa$ments on a home e2uit$ loan, $ou can lose $our
A. Savings account
9. Car
C% Eouse
D. 8etirement account
'. .urnishings

Difficulty: Easy
%opic: oans

,/. (p. 1)1) A credit cardholder "ho pa$s off his balances in full each month is !no"n as
A. An impulsive lender
$% Convenience user
C. Eome e2uit$ holder
D. 9 and C are correct
'. All of the above are correct

Bloom's: Knowledge
Difficulty: 'edium
%opic: &redit cards

5-&
-0. (p. 1)1) *hich of the follo"ing is B03 associated "ith credit cards@
A. Frace period
9. .inance charge
C. Annual fee
D. Convenience users and borro"ers
% Do"n pa$ment on a home

Difficulty: 'edium
%opic: &redit cards

-1. (p. 1)1) *hich of the follo"ing electronicall$ subtracts mone$ from $our savings or
chec!ing account to pa$ for goods and services@
A. Credit card
9. Closed-end credit
C% Debit card
D. Fift card
'. Eome e2uit$ loan

Difficulty: 'edium
%opic: &redit cards

-. (p. 1)1) 9an!ruptc$ courts treat gift cards
A. As illegal loans
9. As bribes
C% 3he same "a$ the$ handle unsecured debt
D. As a smart choice
'. 3he same as debit cards

Difficulty: 'edium
%opic: &redit cards

5-5
-%. (p. 1)3) 9efore ta!ing out a loan, $ou should as! $ourself "hether $ou can meet all of $our
essential e#penses and still afford the monthl$ loan pa$ments. 3his can be determined b$:
A. Adding up basic monthl$ e#penses then subtracting this total from ta!e-home pa$.
9. As!ing "hat $ou plan to give up to ma!e the monthl$ loan pa$ment.
C. :ultipl$ing $our ta!e-home pa$ b$ 50 percent and subtracting $our current loan pa$ments.
D% A and 9 are correct.
'. A, 9, and C are correct.

Difficulty: 1ard
%opic: (pplying for credit

-&. (p. 1)4) '#perts suggest that the debt pa$ments-to-income ratio should be a ma#imum of
A. 0 percent
$% 0 percent
C. 5 percent
D. 50 percent
'. 100 percent

Difficulty: 'edium

-5. (p. 1)4) 1f $ou have reached the upper limit of debt obligations, $our debt-to-e2uit$ is about
A. 0
9. .
C. .5
D. .5
% 1

Difficulty: 'edium

5-+
-+. (p. 1)4) *hen calculating the debt-to-e2uit$ ratio, the follo"ing is B03 included:
A. Credit card balances
9. 0pen-end credit
C. Auto loan balances
D% :ortgage balance
'. All of the above are included in the calculation

Difficulty: 'edium

-,. (p. 1)4) 3he 2uestion C"ill $ou repa$ the loan@C relates to
A% Character
9. Capacit$
C. Capital
D. Collateral
'. Conditions

Bloom's: Knowledge
Difficulty: 'edium

--. (p. 1)461))) 3he 2uestion C"hat are $our assets and net "orth@C relates to
A. Character
9. Capacit$
C% Capital
D. Collateral
'. Conditions

Bloom's: Knowledge
Difficulty: 'edium

5-,
-/. (p. 1)461))) 3he use of propert$ or savings to secure a loan relates to
A. Character
9. Capacit$
C. Capital
D% Collateral
'. Conditions

Bloom's: Knowledge
Difficulty: 'edium

/0. (p. 1)461))) A loan officer is e#amining "hether or not heGshe "ill offer $ou a loan toda$.
Specificall$, heGshe is e#amining $our income and debts. *hich of the five Cs is the loan
officer revie"ing@
A. Character
$% Capacit$
C. Capital
D. Collateral
'. Conditions

Bloom's: Knowledge
Difficulty: 1ard

/1. (p. 1)-) 3he '2ual Credit 0pportunit$ Act 4'C0A5 prohibits a lender from discriminating
based on
A. 8ace
9. Bationalit$
C. Age
D. Se#
% All of these are prohibited.

Difficulty: 'edium

5--
/. (p. 1)-) *hich of the follo"ing is the best scoring techni2ue used in credit applications for
consumers "ith limited credit histories@
A. CreditEistor$
9. Credit8eport
C. .1C0
D. ?imitedCredit
% 7antageScore

Difficulty: 'edium

/%. (p. 1)+) .1C0 scores generall$ range from
A. 100 to 1000
9. 00 to ,00
C% %50 to -50
D. &50 to +50
'. 500 to 1000

Difficulty: 'edium

/&. (p. 1))) *hich of the follo"ing is B03 a valid credit application 2uestion@
A. Eo" much of a loan are $ou re2uesting@
9. *hat is the account number for $our chec!ing account@
C. *hat is the name of the nearest relative not living "ith $ou@
D. Eo" man$ dependents do $ou have@
% All of the above are valid credit application 2uestions.

Difficulty: 1ard

5-/
/5. (p. 1).) *hen evaluating $our credit application, a lender ma$ B03
A. As! $our date of birth
$% Den$ $ou if $ou receive public assistance
C. 8e2uest a list of the ages of $our dependents
D. 1n2uire if $ou ever received credit before from that lender
'. As! the income of $our spouse, if $ou have a )oint application

Difficulty: 1ard

/+. (p. 1).) *hat step can $ou ta!e if $our credit application is denied@
A. Sue the credit rating agenc$
9. .ile a complaint against the merchant
C% As! "h$ $ou "ere denied credit
D. 8eappl$ for credit once %0 da$s have passed
'. 9orro"ers do not have an$ rights provided b$ la"

Difficulty: 'edium
%opic: &redit (pplications

/,. (p. 1).) 1f $ou are denied credit, $ou can contact the credit bureau and as! for a cop$ of $our
credit report. 3he bureau cannot charge a fee for this service as long as $ou as! to see $our
files "ithin
A. 10 da$s
9. 0 da$s
C. %0 da$s
D% +0 da$s
'. /0 da$s

Difficulty: 'edium

5-%0
/-. (p. 1).) A credit report includes
A% Credit histor$
9. Assumptions made b$ credit rating agencies
C. Credit score
D. Credit e#pectations
'. All of the above

Difficulty: 'edium

//. (p. 1)2) *hich of the follo"ing is B03 a credit bureau@
A. '#perian
9. '2uifa#
C. 3rans Anion
D% .1C0
'. All of the above are credit bureaus

Difficulty: 'edium

100. (p. 1)2) Credit bureaus get their information from all of the follo"ing e5cept:
A. 9an!s
9. Credit card companies
C. .inance companies
D% 8eferences
'. Stores

Difficulty: Easy

5-%1
101. (p. 1+1) *hich of the follo"ing is the onl$ online source authori(ed to provide a free credit
report each $ear at $our re2uest@
A. """.annualcreditscore.com
9. """.freecreditreport.com
C. """.onlinecreditreport.com
D. """.freecreditscore.com
% """.annualcreditreport.com

Difficulty: 'edium

10. (p. 1+/) Credit files can include all e#cept:
A. 'mplo$er, position and income
9. =revious address
C. Spouse6s name, Social Securit$ number, emplo$er, and income
D% 8ace or nationalit$
'. Chec!s returned for insufficient funds

Difficulty: 'edium

10%. (p. 1+/) *hich is B03 true about the .air Credit 8eporting Act@
A. 8egulates the use of credit reports
9. 8e2uires deletion of out-of-date information
C. Fives consumers access to their files and the right to correct an$ misinformation
D. =laces limits on "ho can obtain a report
% Allo"s borro"ers to receive free annual credit reports

Bloom's: Knowledge
Difficulty: 'edium

5-%
10&. (p. 1+,) Credit reports can be obtained for all e5cept:
A. 1n response to a court order
9. 1n connection "ith a credit transaction
C. .or under"riting of insurance
D% 1n2uir$ b$ a neighbor
'. .or some legitimate business need

Difficulty: Easy

105. (p. 1+,) 1nformation about a personal ban!ruptc$ ma$ be reported in $our credit file for
A. 1 $ear
9. % $ears
C. , $ears
D% 10 $ears
'. =ermanentl$

Bloom's: Knowledge
Difficulty: 'edium

10+. (p. 1+3) 1f $ou are denied credit,
A. <ou have a legal right to sue the credit bureau
9. <our parent can purchase a cop$ of $our credit report
C. <ou have a legal right to sue the compan$ that denied $ou credit
D. 3he denial "ill remain in $our credit file for 10 $ears
% <ou are entitled to a free cop$ of $our credit report

Difficulty: 'edium

5-%%
10,. (p. 1+3) 3he finance charge for credit includes all e5cept:
A. 1nterest costs
9. Services charges
C. Credit-related insurance premiums
D. Appraisal fees
% Amount borro"ed

Bloom's: Knowledge
Difficulty: 'edium

10-. (p. 1+3) 3he A=8 is the percentage cost of credit on a4n5 HHHHHHHHHHHHHH basis.
A. :onthl$
9. Iuarterl$
C. Semi-annual
D% Annual
'. ?ife-of-loan

Bloom's: Knowledge
Difficulty: Easy

10/. (p. 1++) 1f a loan is being paid in installments instead of all at the end of the loan period, the
actual rate of interest "ill be
A. ?o"er than the stated rate
9. 3he same as the stated rate
C% Eigher than the stated rate
D. Anrelated to the stated rate
'. Cannot be determined "ithout !no"ing the length of the loan period

Difficulty: 'edium

5-%&
110. (p. 1++) Sam is comparing the costs of t"o loans. 0ne is due in one $ear and the other is
due in four $ears. 9oth have the same stated rate of interest. *hich of the follo"ing is true@
A. 3he principal paid for the one $ear loan "ill be lo"er than the principal paid for the four
$ear loan.
9. 3he principal paid for the one $ear loan "ill be higher than the principal paid for the four
$ear loan.
C% 3he interest paid for the one $ear loan "ill be lo"er than the interest paid for the four $ear
loan.
D. 3he interest paid for the one $ear loan "ill be higher than the interest paid for the four $ear
loan.
'. 3he interest and principal pa$ments cannot be compared for the t"o loans.

Difficulty: 'edium

111. (p. 1+.) 3he minimum monthl$ pa$ment on a credit card is
A. 3he amount to be paid "ithout pa$ing interest
9. 3he interest amount charged for the month
C. 3he minimum to be paid to avoid an$ charges or fees
D% 3he smallest amount $ou can pa$ and remain a borro"er in good standing
'. 3he amount needed to pa$ off the credit card in one $ear

Bloom's: Knowledge
Difficulty: 'edium

11. (p. 1+.) 1f $ou double the monthl$ pa$ment for a credit card, the loan "ill be paid off in
A. Ealf the time
$% ?ess than half the time
C. :ore than half the time
D. 3he additional pa$ment "ill have no impact
'. Bot enough information to ans"er

Difficulty: 'edium

5-%5
11%. (p. 1+2) *hich of the follo"ing acts sets procedures for promptl$ correcting billing
mista!es, refusing to ma!e credit card or revolving credit pa$ments on defective goods, and
promptl$ crediting accounts@
A. '#perian Act of 1/-
9. .air Credit 8eporting Act of 1/,1
C. 9ills and Disputes Act of 1/+%
D. '2uifa# Act of 1/,/
% .air Credit 9illing Act of 1/,5

Bloom's: Knowledge
Difficulty: 1ard

11&. (p. 1+2) 1f $ou thin! a bill is "rong or $ou "ant more information about the bill, then $ou
and $our creditor should follo" all of the steps belo" e5cept
A. <ou should notif$ $our creditor in "riting.
9. <ou should pa$ the portion of the bill that is not in 2uestion.
C. <our creditor must ac!no"ledge $our letter "ithin %0 da$s.
D. <our creditor must ad)ust $our account or tell $ou "h$ the bill is correct "ithin t"o billing
c$cles.
% <our creditor must reimburse $ou for $our time spent researching the error.

Difficulty: 1ard

115. (p. 1-/) *hich of the follo"ing is often the first sign of a stolen identit$@
A% <ou receive bills for a credit card account $ou never opened
9. <ou see charges to $our account for things $ou purchased
C. <ou receive a phone call from the thief
D. <ou receive a duplicate credit card from $our credit card compan$
'. All of these are t$pical signs of a stolen identit$

Difficulty: 'edium

5-%+
11+. (p. 1-/) 1f $ou thin! $our identit$ has been stolen, "hich of the follo"ing actions does the
.ederal 3rade Commission recommend $ou ta!e immediatel$@
A. 8eport it to $our neighbor
9. Call /11
C. Contact $our local ban!
D% .ile a police report
'. All of these steps should be ta!en immediatel$

Bloom's: Knowledge
Difficulty: Easy

11,. (p. 1-/) *hich of the follo"ing items should be shredded to protect $ourself from identit$
theft@
A. :aga(ines
$% =apers "ith personal information
C. 'nvelopes
D. =rivac$ notices that are received "ith credit card statements
'. Be"spaper ads

Bloom's: Knowledge
Difficulty: Easy

11-. (p. 1-/) Carrie thought she misplaced her chec!boo! for a fe" da$s. *hen she found it, she
noticed that t"o chec!s, her cash and her debit card "ere missing. She immediatel$ thought
about the increase in identit$ theft in her area and decided to ta!e some action. She should
ta!e all of the follo"ing steps e5cept
A. Stop pa$ment on the missing chec!s.
9. Cancel her debit card.
C. Fet a ne" debit card "ith a ne" personal identification number 4=1B5.
D. Close her ban! account and open a ne" one.
% All of the steps above are appropriate to ta!e if she suspects identit$ theft.

Difficulty: 'edium

5-%,
11/. (p. 1-1) *ho is responsible for a loan repa$ment@
A. 3he store granting credit
9. 3he credit card compan$
C. 3he government
D% 3he cosigner
'. 3he ban!

Difficulty: Easy
%opic: &osigning a loan

10. (p. 1-1) All of the follo"ing are consumer credit protection la"s e5cept
A. 3ruth in ?ending and Consumer ?easing Act
9. '2ual Credit 0pportunit$ Act
C. .air Credit 9illing Act
D% Credit ?a"suit Act
'. Consumer Credit 8eporting 8eform Act

Bloom's: Knowledge
Difficulty: 'edium
%opic: &onsumer protection

11. (p. 1-1) 1f $ou "ant to file a complaint against a ban!, $ou:
A. :ust have an account at the ban!
9. :ust have at least D100,000 invested in the ban!
C. :ust have a chec!ing or savings account "ith the ban!
D% Do not need to have an account at the ban!
'. :ust have a loan outstanding at the ban!

Difficulty: 'edium

5-%-
1. (p. 1-,) According to the .air Credit 9illing Act, if a creditor fails to follo" the rules that
appl$ to correcting an$ billing errors, $ou have the right to sue for
A. Actual damages
$% Actual damages plus t"ice the amount of an$ finance charges
C. 3he amount o"ed on the item in 2uestion
D. 3hree times the actual damages
'. Bothing

Difficulty: 1ard

1%. (p. 1-3) All of the follo"ing are signs of financial trouble e#cept:
A. <ou use savings to pa$ for necessities such as food and utilities.
9. <ou receive second and third pa$ment due notices from creditors.
C. <ou e#ceed the credit limits on $our credit cards.
D% <ou pa$ $our credit card bills in full each period.
'. 3he total balance on $our credit cards increases ever$ month.

Difficulty: 'edium
%opic: De"t pro"lems

1&. (p. 1-4) 3he Consumer Credit Counseling Service
A% Aids families "ith serious debt problems b$ helping them to manage their mone$ better
and set up a realistic budget
9. 1s a consolidation firm that "ill manage bills for a percentage of the total pa$ment due
C. =rovides counseling, usuall$ for a fee
D. 1s a program to "ipe out $our debts "ithin t"o $ears
'. All of the above are correct

Difficulty: 'edium
%opic: De"t pro"lems

5-%/
15. (p. 1-)) =ersonal ban!ruptc$ can be filed under "hich section4s5 of the A.S. ban!ruptc$
code@
A. Chapter ,
9. Chapter 11
C. Chapter 1%
D% A and C are correct
'. 9 and C are correct

Difficulty: 'edium
%opic: Ban4ruptcy

1+. (p. 1-)) Ander Chapter , o f the A. S. 9an!ruptc$ code,
A. All debts are forgiven
9. Alimon$ and child support debts are released
C% Certain assets receive some protection
D. 3a#es and fines no longer need to be paid
'. Debt arising from driving "hile into#icated is forgiven

Difficulty: 'edium
%opic: Ban4ruptcy

1,. (p. 1-+) .ollo"ing the signing of 3he 9an!ruptc$ Abuse =revention and Consumer
=rotection Act of 005, debtors see!ing to erase all debts "ill have to "ait HHH $ears from
their last ban!ruptc$ before the$ can file again.
A. 0ne
9. 3hree
C. Seven
D% 'ight
'. 3en

Bloom's: Knowledge
Difficulty: 'edium
%opic: Ban4ruptcy

5-&0
1-. (p. 142) 8achel 'fron "ent to the A3: to dra" D00 cash "ith her debit card. She
inadvertentl$ pulled out her credit card instead, not reali(ing the e#penses for cash advances.
1f her credit card compan$ charges a cash advance fee of % percent and interest at & percent
A=8, "hat are the total fees she "ill pa$ for her mista!e@
A. D
9. D&
C. D+
D% D10
'. D&
Similar to .igure it 0utJ 0n page 1&5
Cash advance fee > %K D00 > D+
1nterest for one month > &K A=8 D00G1 months > &-G1 > D&
3otal cost for one month > D+ L D& > D10

Bloom's: (pplication
Difficulty: 'edium
%opic: &as* ad$ances

5-&1
1/. (p. 142) 3imoth$ Calibe "ent out to eat "ith his girlfriend at a fanc$ restaurant. *hen he
tried to pa$ the bill "ith his :astercard credit card, he "as told that the restaurant onl$
accepted cash or American '#press. Eis "aiter suggested that he use the A3: across the
street to "ithdra" cash using his credit card. 3im did as suggested and didn6t pa$ attention to
an$ fees until he received his credit card statement one month later. Ee "as shoc!ed to see the
total fees 4% percent cash advance5 and his A=8 "as increased to 1 percent. Fiven the cost of
the meal 4D1505 plus the associated fees, ho" much did his meal cost him@
A. D.+%
9. D&.50
C. D150
D% D15,.1%
'. D1-+.00
Similar to .igure it 0utJ 0n page 1&5
Cash advance fee > %K D150 > D&.50
1nterest for one month > 1K A=8 D150G1 months > %1.50G1 > D.+%
3otal cost for one month > D&.50 L D.+% > D,.1%
3otal cost for meal L fees > D150 L ,.1% > 15,.1%

Difficulty: 1ard
%opic: &as* ad$ances

1%0. (p. 142) Acme Eome ?ending offers home e2uit$ loans up to ,5 percent of the home value
for its customers. 1f Sall$ Mohnson has a home valued at D00,000 and a current mortgage of
D+5,000, ho" much can she borro" in a home e2uit$ loan from Acme@
A. D+5,000
9. D,5,000
C% D-5,000
D. D101,50
'. D150,000
:a#imum > home value ,5K - mortgage balance > D00,0000 ,5K - D+5,000 > D-5,000.

Difficulty: 'edium
%opic: oans

5-&
1%1. (p. 1)1) 1f 7ina$ charged D%00 on his credit card "ith 1- percent A=8 and he paid his
balance in full "ithin the grace period, ho" much "as he re2uired to pa$@
A. D&.50
9. D1-.00
C. D/5.50
D% D%00.00
'. D%0&.50
Bo interest is charged during the grace period.

Difficulty: 'edium
%opic: &redit cards

1%. (p. 1)4) 8achel 'fron has net monthl$ income of D,&00. She has a monthl$ auto loan
pa$ment of D50, a student loan pa$ment of D10, and credit card minimum pa$ment of D&0.
*hat is her debt-pa$ments-to-income ratio@
A. +., percent
9. 10.& percent
C. 15.& percent
D% 1, percent
'. 0 percent
4D50 L D10 L &05GD&00 > .1,0- > 1,.0-K

Difficulty: 'edium

5-&%
1%%. (p. 1)4) 3imoth$ Calibe has net monthl$ income of D&,00. Ee has a monthl$ auto loan
pa$ment of D%50, a student loan pa$ment of D10, mortgage pa$ment of D1,100 and credit
card minimum pa$ment of D&0. *hat is his debt-pa$ments-to-income ratio@
A. 11. percent
$% 1.1 percent
C. +. percent
D. %0 percent
'. %-.% percent
4D%50 L D10 L &05GD&00 > .11& > 1.1&K

Difficulty: 1ard

1%&. (p. 1)4) Eannah has liabilities totaling D5,000 4e#cluding her mortgage of D,5,0005. Eer
net "orth is D50,000. *hat is her debt-to-e2uit$ ratio@
A. .5
$% .50
C. 1.00
D. 1.50
'. .00
D5,000GD50,000 > .50

Difficulty: 'edium

5-&&
1%5. (p. 1+3) =eter borro"ed D50. Ee paid D5 interest and a service charge of D.50. *hat is
his finance charge@
A. D.50
9. D5.00
C% D,.50
D. D50.00
'. D,,.50
.inance charge > interest L service charge > D5 L D.50 > D,.50

Difficulty: 'edium

1%+. (p. 1+3) =aul borro"ed D50 to be repaid in one $ear. Ee paid 10 percent interest and a
service charge of D.50. *hat is his finance charge@
A. D.50
9. D5.00
C% D,.50
D. D50.00
'. D,,.50
1nterest > D50 10K > D5. .inance charge > interest L service charge > D5 L D.50 >
D,.50

Difficulty: 1ard

5-&5
1%,. (p. 1+3) Suppose $ou borro" D00 for one $ear and pa$ a finance charge of D0. 1f $ou
repa$ this loan all at once after one $ear, "hat is $our average balance@
A. D10
9. D100
C. D110
D% D00
'. D0
Average balance D00 borro"ed since it is available during the entire loan period.

Difficulty: 'edium

1%-. (p. 1+3) 3an$a received a D1,000 loan from the ban! for a vacation. 3he ban! is using the
simple interest formula for this one-$ear, , percent loan. *hat is her total interest@
A. D,
9. D%5
C% D,0
D. D%50
'. D1,00,
1 > = r 3 > D1,000 .0, 1 $ear > D,0

Difficulty: Easy

5-&+

FINC298 Chap 005 Practive Quiz

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Chapter 05 - Consumer Credit: Advantages, Disadvantages, Sources, and Costs

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