Personal Finance Chapter 6

Credit scoring systems are often used by lenders to determine your creditworthiness. True
It is not a good idea to use credit for consumable items.
Open account credit is characterized by a monthly credit statement.
Families who have a source of income and who want to retain their assets above the protected amount would select Chapter 13 rather than Chapter 7 bankruptcy. True
Borderline credit risks would most likely receive a limited line of credit
Your account with the utility company is an example of open account credit. True
A good rule to remember when considering the use of credit is that the product purchased on credit should outlive the amount of time it takes to pay it off. True
With prepaid cards, there is no established line of credit. True
Credit reports are routinely used to predict creditworthiness. True
As well as being among the cheapest forms of consumer credit, these offer shelters from taxes: Home equity loans
Unsecured lines of credit are easy to use and often use some form of collateral as default protection. False
Finance charges on two credit cards with the same stated APR will be determined by the method used to calculate balances.
Which of the following household devices could help you protect yourself against identity theft? Shredder
Cards that can be used to pay for selected items with the amount of the transactions automatically subtracted from the card value are called ____ cards. Prepaid
Credit reports on individual borrowers are issued by credit bureaus. True
The following information provides insight to a lender about the applicant’s creditworthiness except all of the above provide insight
Credit should not consistently be used for nondurable goods. True
The ____ is really a second mortgage on your home. home equity line of credit
College students without verifiable income cannot be issued credit cards. True
Chapter 7 bankruptcies can remain in your credit file for up to 10 years. True
____ cards offer the cardholder a way to contribute to a worthy cause, sometimes described as “painless philanthropy.” Affinity
Bank credit cards represent the most common kind of open account credit. True
If your credit card company increases your interest rate, the new rate can only be applied to new charges, not to preexisting balances. True
The year after the Credit Card Act of 2009 went into effect payment defaults declined.
____ would be an acceptable use of credit. All of these
The purpose of a credit report is to evaluate the kind of risk you pose to the lender. True
Joe and Jane have a tendency to build up large balances on their credit cards. Which of the following would be LEAST important for them? Long grace period
As a percent of take-home pay, monthly consumer credit payments should not exceed 20%
Prepaid cards are referred to as electronic wallets. True
Secured credit cards require that the cardholder put up collateral in order to get the card. True
Never adding up all your bills is one of the signs that you may be headed for serious credit problems. True
A credit card can provide an interest-free loan if you pay the entire balance on or before the due date.
Having arranged and fully repaid a small loan should help improve creditworthiness. True
Debit cards look like credit cards, but they work like checks. True
Credit bureau files often include information such as political and religious affiliations in addition to financial information. False
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 $300
Which of the following are true regarding credit scoring systems? Scoring systems are based on statistical studies.
A Chapter 13 bankruptcy filing results in the discharge of most of your debts. False
When canceling a credit card, you should cut up the card and ____ that you are canceling your account. Inform the issuer in writing
____ would be an indication of overspending. all of these
Persons with very poor credit ratings can still get ____ credit cards. Secured
Credit card payments received the next business day after a holiday or weekend due date are considered on time. True
Interest will almost always begin to accrue immediately when you use a bank credit card to get a cash advance
Unsecured lines of credit provide tax advantages if you itemize deductions. get a cash advance
The key to creditworthiness is to keep your debt safety ratio as high as possible. False
Anna uses her credit card regularly, but she pays the total balance monthly. Anna should look for a credit account with -no annual fee -Long grace period
Using more than 20 percent of one’s take-home income to pay off consumer debt is one of the signs that one may be headed for serious credit problems. True
Rebate credit cards work best for those who use the rebates, charge a lot, and do not carry high monthly balances. True
The quality of your credit rating is maintained by meeting credit obligations as contracts require
____ are not a type of open account credit. Bank debit cards
Credit bureaus Will do none of these
Ann Marie accumulated a large balance on her credit card while in college. She is trying to get it paid 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? low APR
The Wage Earner Plan requires debtors to give up most of their [email protected] wage earner plan re-structures debt to arrange a more affordable repayment schedule rather than confiscates the assets. False
One can be overusing credit even though he can afford to make minimum monthly payments on time. True
Haun and Mei have a home valued at $96,000 and an outstanding mortgage of $50,000. If their lender is willing to provide a home equity loan of up to 85% of market value, how much could they borrow using a home equity loan? $31,600
Credit reports on individual borrowers are issued by credit card issuers. False
The amount of finance charges one pays on a credit card depends only on APR and the amount one charges. False
____ is a benefit of using credit. All of these
Home equity loans are one of the least expensive forms of consumer credit. True
The most common method used by lenders to apply finance charges to credit cards is the average daily balance including new purchases method. True
The majority of persons filing bankruptcy file Chapter 7 bankruptcy. True
The most common form of open account credit is the debit card. False
If the information on your credit report is in dispute, you are entitled to supply your own explanation about the dispute.
All of the following are key items lenders look at in granting credit except Religious affiliations
Credit cards with very low minimum payment requirements are in the consumer’s best interest. False
Paying a loan off much quicker than scheduled is one way to build a good credit rating. True
Bank credit card purchases always begin accruing interest charges immediately. False
All of the following are useful ways to build a strong credit rating except Apply for a long-term loan and occasionally be late with a payment.
One can lose his home if he does not repay his home equity line of credit. True
A credit card user’s credit rating will be harmed if she pays only the minimum monthly payment on a credit card. False
As a rule, the smaller the bank or S&L, the more likely it is to charge an annual fee for its credit cards. False
Theresa is a bit of a spendthrift. She has trouble saying no when it comes to buying things. Which of the following cards would keep her out of debt? debit
Mike has a MasterCard with an annual fee of $25, 18% interest, and a $1,000 credit limit. He always pays the total outstanding balance monthly. His most recent monthly statement lists last month’s payment, new charges this month totaling $1,500, and a $30 fee. That fee is most likely An over-the-limit-fee
William uses his bank credit card frequently; however, he always pays off the total balance on the card each month. What features should William especially look for in a credit card? No annual fee and long grace period
Personal insolvency can be legally satisfied by -Chapter 13 bankruptcy-Chapter 7 bankruptcy
For someone with a good credit rating, lenders will typically lend up to 100% of equity in a home using a home equity credit line. False
The most common method of computing finance charges on a credit card is the average daily balance method including new purchases. true
Advantages of balance transfers can include lower interest rates and the convenience of consolidation. true
To establish creditworthiness you probably should first open savings and checking accounts.
Clare’s gross salary is $36,000 annually and her after-tax income is $28,800. What is Clare’s maximum recommended monthly consumer credit payment? $480
When paying for something with a check, don’t give your ____ number. -Social security -Credit card
Saving is the preferred way to provide for financial emergencies True
The most common forms of open account credit are bank credit cards and retail charge cards. True
The lender uses a credit application to determine whether the borrower has the ____ to handle the debt. Character and capacity
Credit cards often have penalties for late payment and for exceeding credit limits. True
Before filing for bankruptcy, debtors should consider seeking the help of a credit counselor. True
Interest rates on ____ are typically lower than on any other form of consumer credit. home equity lines of credit
Having a checking account tells a creditor that you have some experience in managing your own funds. True
Student credit cards typically require that one be enrolled in a 2- or 4-year college/university and have some form of income
For a person who sometimes pays his entire credit balance and sometimes pays the minimum payment, which calculation method would be the least expensive? average daily balance excluding new purchases
If you initiated the telephone call, it is okay to give your credit card account number when ordering/purchasing from major catalog houses, airlines, hotels, and so on. True
Most organizations that issue credit cards have basically the same qualifications for card applicants. False
The proceeds of a home equity loan can be used for just about any purpose, and the interest paid is usually tax deductible. True
Leon has a home valued at $216,000 and an outstanding mortgage of $140,000. If his lender is willing to provide a home equity loan of up to 80% of market value, how much could Leon borrow using a home equity loan? $32,800
Methods used by identity thieves to obtain personal information include all except skimping
With open account credit, one can often avoid interest charges if the account balance is paid in full every month.
Rebate cards work best for those who use the rebates and -charge large amounts on the card.-pay the total card balance off monthly.
It is safe, and often required, to give your Social Security number as a form of identification when using a credit card. False
A ____ is an agency that provides credit information about individual borrowers to lenders. Credit bureau
A credit limit refers to the maximum amount the cardholder can owe the issuer at any point in time. True
Using credit is the ideal way to provide for financial emergencies. False
Generally, finance charges are computed only on the unpaid balance from previous months’ purchases. False
Student credit cards are structured much differently than regular credit cards. False
It is not a good idea to use credit to live beyond one’s means.
After the Credit Card Act of 2009 was passed, late payments dropped but defaults increased. False
A problem with home equity loans is the temptation to spread payments over a long term.
The intent of the Wage Earner Plan is to provide an alternative to straight bankruptcy. True
Due to the Credit Card Act of 2009, finance charges can no longer be calculated using the double-cycle billing approach. True
The required monthly payment on an open account will be the smaller of a minimum dollar amount or a specified percentage of the balance. False
Chapter 7 bankruptcy will typically eliminate most debt obligations.
Generally speaking, the interest rates on credit cards are lower than any other form of credit. False
Paying only the minimum payment each time on a credit card usually enables one to pay off the balance fairly quickly. False
Always paying cash is helpful in establishing a high level of creditworthiness. False
Revolving credit lines are often accessed by writing checks. True
A debt safety ratio of 15% would generally be a signal of financial trouble ahead. False
Interest rates on credit cards tend to be lower than most other forms of consumer credit. False
Auto loans are an example of open account credit since you can add to the debt when you purchase another vehicle. False
For a fee, credit bureaus can provide credit scores for prospective borrowers. True
Filing Chapter 7 bankruptcy eliminates one’s obligation to pay past-due alimony and child support payments. False
Chapter 7 bankruptcy will stay on one’s credit record up to 10 years.
Open account credit is a form of credit extended to a consumer in advance of any transaction. True
One can and should check his credit bureau file regularly. True

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