Finance Final Exam: Ch 8

Taking a cash advance on your credit card for daily living expenses may not be a wise financial decision because interest begins on the cash advance balance amount immediately true
Cash advances generally require upfront fee of 4 to 6% of the amount advanced false
Late library fines and unpaid parking tickets can hurt your credit score true
Most credit cards offer a 31- to 35-day grace period from the date of the bill to make payments false
The average daily balance method calculated interest payments based on the ending balance of the previous period false
For the average consumer there is usually a set limit on open or revolving credit accounts true
Financially savvy people take advantage of the grace period on major purchases and pay the balance off in full; thus avoiding finance charges true
Over 70% of the 25 biggest credit card issuers do not charge annual fees true
The main factor that determines the cost of a line of credit is the …………, which is also considered the true simple interest rate paid over the life of the loan annual percentage rate (APR)
According to the Bankcard Holders Association of America, about 95% of all bank card issuers use the average daily balance method
Which of the following apple to getting a cash advance with a credit card? A.You begin paying interest immediately.B.The interest rate may be higher than on regular purchases.C.Cash advances are available at ATM machines.D.There may be a cash advance fee.E.All of the above****
Jessica always thought the grace-period feature of her credit card was a wonderful idea because her charges were interest-free during the grace period. After taking Dr. Art​ Keown’s personal finance​ course, she learned this startling truth about grace periods. most banks eliminate their grace period on new purchases if you don’t pay your balance in full
When you use a credit card at a store, the store is generally charged a fee ranging from 1.5% to 5%. What is this fee called? merchant discount fee
Assuming the APR on your credit card is 24% and your average daily balance this month was $8,000, what will your interest or finance charges for the month be? $160
One of the unpleasant secrets about using your credit card for a cash advance is that payments do not apply to cash advance balances unless the balance for regular credit purchases is zero
Sometimes retailers will give up to a 5% discount if you pay cash for their products instead of using your credit card. Why? they are saving on the merchants discounts fee so they pass the savings on to you
When you withdraw cash from an ATM using your credit card you being paying interest immediately
The Credit Card​ Accountability, Responsibility, and Disclosure​ (CARD) Act established fee caps for cards. Card fees cannot total more than​ ________ of the initial credit limit. 25%
Which of the following is an advantage of credit cards? they allow the consumer the ability to rent cars and make online reservations
Which of the following is a disadvantage of credit cards? the finance charge that accrues on the account if not paid off in full each month
A convenience user of credit cards is someone who pays off the credit card balance each month true
A single-purpose card is a credit card that can be used only at a specific company true
Angela tried to use her Macy’s credit card at Target but was unsuccessful because Target only accepts Target credit cards false
To a credit user, the perks and benefits are the most important determinant when choosing a credit card false
Which of the following are important to convenience users of credit cards A.Interestminusfree grace periodB.Card benefits and perksC.Low annual feeD.All of the above****
A(n) ________ card is a credit card that does not offer revolving credit and requires full payment of the balance at the end of each month. T&E
What is the main distinguishing features for T&E cards? They do not offer revolving credit and the full balance must be paid each month
What type of a credit card is issued in partnership with a specific charity or​ organization, such as Mothers Against Drunk Driving​ (MADD), the National Rifle Association​ (NRA), or a college or​ university? Affinity card
Which of the following statements is most correct regarding a secured credit card? it is useful to someone who has bad credit or no credit established yet
Jerome has three major credit cards and makes payments on them each month. He has had one of them for six​ years, another for three​ years, and the last for eleven months. Making just the minimum payment has become automatic at this​ point, and Jerome barely even looks at the statements. Jerome is beginning to think that his approach to credit may be​ faulty, and he wants to find out how to adjust it. He just applied for two additional credit cards.Based on his credit card​ usage, which of the following aspects of a credit card should be most important to​ Jerome? The APR on the unpaid balance
Jerome has three major credit cards and makes payments on them each month. He has had one of them for six​ years, another for three​ years, and the last for eleven months. Making just the minimum payment has become automatic at this​ point, and Jerome barely even looks at the statements. Jerome is beginning to think that his approach to credit may be​ faulty, and he wants to find out how to adjust it. He just applied for two additional credit cards.What advice might you give to​ Jerome? consider using savings to pay off current credit car debt
Credit card issuers are free to set up shop near large university campuses and offer free gifts- anything from free or discounted flights to free Frisbees false
According to a Nellie Mae​ study, 93 percent of graduate students would have liked more information on financial management topics before they started school and would like financial management education made available to them now. true
It is against the law for your potential employer to use your credit score for employment considerations false
A credit bureau is a private organization that maintains credit info. on individuals, which it allows subscribers to access for a fee true
One of the following lists constitutes the five Cs of credit. Select the correct one. Character, capacity,​ capital, collateral, conditions
​________ is not information generally found in your credit report. college attended, grades, etc.
Your credit scores affect A.your mortgage rate.B.the rate you pay on your credit cards.C.the amount of junk mail offering additional credit cards that you receive.D.the size of your credit line.E.All of the above are correct answers*****
A low FICO score can cost you quite a bit when you get a mortgage loan
Which of the 5 Cs of credit would your actual home be in relation to your mortgage? collateral
What rights would a college friend of your have whose credit card application was denied .The right to point out errors in her fileB.The right to have the file be accurateC.The right to request mistakes in the file be correctedD.The right to view her credit reportE.All of the above are correct answers*****
Consider the “Five Cs of Credit.” The category that considers the size of your investment holding or portfolio is capital
Which of the following regarding credit applications analysis is incorrect? A.Credit card issuers normally assign a minimal acceptable credit cutoff score.B.Lenders may not discriminate on the basis of age.C.You are entitled to one free copy of your credit report each year from the three major credit bureaus.D.Bankruptcy remains a mark against you for a period of ten years after it occurs.E.None of the above statements is​ incorrect; all of the above are true statements.*****
Credit card insurance is usually unnecessary since your liability on credit card losses is limited by law to $50
One of the 5 Cs of credit is capacity. Most likely, what information would potential creditors consider in evaluating your capacity? your leverage and liquidity ratios
The CARD Act of 2009 toned down the actions of credit card issuers by banning offers of freebies such as free pizza and T-shirts.
The​ ________ provides a single location for financial protection and oversight and its mandate is to help consumers make better decisions. Consumer Financial Protection Bureau​ (CFPB)
The Fair and Accurate Credit Transactions Act​ (FACT) allows everyone to a free copy of their credit report every year. Why is it a good idea to check your credit report every​ year? A.To make sure that there are no errors on itB.To make sure that someone has not stolen your identityC.To challenge any unauthorized entriesD.All of the above are good reasons.*****
Susan has always maintained an excellent credit rating over the years. She has an annual income of​ $63,000, has lived at her current residence thirteen​ years, and has worked at the same job for eight years. Susan works in a clerical​ position, has two credit cards and maintains two bank accounts. Susan is very conservative and has all of her savings​ ($12,000) in a NOW account at her local bank. One of her credit cards has a balance of​ $550 and has an APR of​ 23%. Susan has been making monthly minimum payments on the credit card. Out of curiosity she would like to know how her credit card companies judge her creditworthiness and what she can do to improve her financial situation. What should Susan do in regards to her credit card​ balance? She should use some of her savings to pay off the balance in full immediately.
Non-profit Credit Counselors should be avoided due to their high fees false
Only a Credit Repair company can remove inaccurate data from your credit report false
Having completed a personal finance​ class, you are now ready to give some advice to your free- spending friends. Which one is​ unwise? Quit using credit cards altogether
When you find you cannot pay your credit card bills you must take​ action! Which option is​ advisable? A.Use a secured loan or home equity loan to get a lower interest rate to pay the cards off.B.Adjust your budget to allow for more money to pay for the cards.C.Change to a less expensive credit card or cards.D.Use savings to pay off some or all of current credit card debt.E.All of the above*****
Most credit users are more interested in free benefits than low APRs false
The Consumer Financial Protection Bureau was created with the oversight authority necessary to ensure that all of the above
The choice of a credit card is a matter of personal credit card philosophy. If you are a credit​ user, the most important decision factor is the​ card’s APR on the unpaid balance
Consider the​ “Five Cs of​ Credit.” The category that considers your current income level and current borrowing level is capacity
The use of credit involves receiving​ cash, goods, or services with an obligation to pay later. Which statement is not an opening line to the use of credit in a​ shopper’s language? “put it on my debit”
How long do you have to begin an investigation into a billing problem under the Fair Credit Billing​ Act? 60 days
The Truth In Lending Act requires that all consumer credit agreements disclose the​ ________ in bold​ print? Annual Percentage Rate (APR)
A convenience user doesn’t really care what the APY is on their credit cards true
A secured credit card is a good tool to help establish credit. true
Roxanne has always maintained an excellent credit rating over the years. She has an annual income of​ $23,000, has lived at her current residence three​ years, and has worked at the same job for eight years. Susan works in a clerical​ position, has two credit cards and maintains two bank accounts. Which one of the following items of evaluation would Roxanne score the highest​ on? employment history
Wally currently has a balance of​ $14,500 on his credit cards and he is having a hard time making the minimum payments on them. He has missed several payments and is now paying the default APR of​ 29.99%. He and his wife own a nice home with​ $40,000 in equity. They have​ $7,500 in a certificate of deposit with a​ 4% APR. He has come to you in tears asking for advice. What would you tell him to​ do? all of the above
Research has determined that undergraduate college students tend to behave in similar manners with regards to their credit card usage. As noted in Chapter​ 6, which of the following behaviors are indicative of undergraduate​ students’ credit card​ behaviors? they make more than their minimum payment each month but still tend to carry a balance on their cards
For the convenience credit card user the interest rate is irrelevant
The lowest FICO a consumer can achieve is 300
Credit scoring is not a flawless method of determining creditworthiness
Your credit card company is required to send you a notice​ ________ before they can increase your interest​ rate, change certain fees​ (such as annual​ fees, cash advance​ fees, and late​ fees), or make other significant changes to the terms of your card. 45 days
Your credit card company cannot increase your rate for the first 12 months after you open an account unless your​ card’s introductory rate expires and your rate reverts to the ​”go-to” rate the company disclosed when you got the card.
Due to compounding​ frequency, the actual interest rate or APY you pay is higher than the advertised interest rate or APR. true
A company that gathers and sells​ consumers’ financial history to creditors is a credit bureau
Which method sums the outstanding balances owed each day during the billing period and divides by the number of days in the​ period? average daily balance
Monty currently has a Visa card from his bank with the following​ terms: 18% on​ purchases, 24% on cash advances with a​ 4% cash advance fee on the​ amount, and a default or penalty rate of​ 36%. His current statement shows a balance of​ $6,000. So far he has only taken one cash​ advance, withdrawing​ $1,000 from a casino in Las Vegas a year​ ago, which he has already paid off. Lately he has been having a hard time paying more than the minimum payment of​ 4% of his balance. The only assets he owns are a sevenminusyearminusold car and a​ $2,500 certificate of deposit that has a​ 5% APR. All of the above
Mary is 38 years old and many of her friends have gotten into trouble using their credit cards to buy things they​ can’t afford. She feels lucky that her grandmother told her that credit is dangerous and that she should always pay cash for everything. So​ far, Mary has never had credit in her name and even paid cash for her car. From a personal finance​ perspective, what advice would you give to​ Mary? both C and D would be good advice for Mary
Changes to credit card policies and rates are usually announced via​ “bill addendums,” which are notices enclosed with your bill. false
Credit cards are a form of​ ________ credit. revolving
The​ ________ is the percentage of the credit card sale that the retailer owes to the credit card company. merchant’s discount fee
According to the Keown​ book, the national average FICO score is around 711
Jerome has three major credit cards and makes payments on them each month. He has had one of them for six​ years, another for three​ years, and the last for eleven months. Making just the minimum payment has become automatic at this​ point, and Jerome barely even looks at the statements. Jerome is beginning to think that his approach to credit may be​ faulty, and he wants to find out how to adjust it. He just applied for two additional credit cards.Most​ likely, Jerome is All of the above are correct
Your credit card company is required to send you a notice 45 days before they can increase your interest​ rate, change certain fees​ (such as annual​ fees, cash-advance ​fees, and late​ fees), or make other significant changes to the terms of your card. true
Credit cards issued in conjunction with particular charities or​ organizations, like the Sierra Club or the Humane​ Society, that send a portion of their annual fee or percentage of their purchases back to the sponsoring organization are known as affinity cards
Everyone who accessed your credit report within the last seven years appears in an​ “inquiry” list that appears on your credit report. false
Credit card companies send out a whopping 6 billion credit card offers annually-roughly 60 offers per U.S.​ household! true
One of the more important factors in determining your credit score is the length of your credit history. true
Credit purchases made for personal needs like home mortgages or car loans are referred to as revolving credit. false
​________ occurs when​ someone, without your knowledge or​ consent, uses your​ name, address, Social Security​ number, bank or credit card account​ number, or other identifying information to commit fraud or other crimes. identity theft
Michael has a credit limit and a balance of​ $3,000 on his Visa card. His car broke​ down, he charged the​ $500 repairs to his Visa which he knows put him over his credit limit for the month. His payment is due on the 20th so he made sure that he had his​ $750 payment to the post office on the 20th. Most​ likely, what penalties or​ fees, if​ any, will he​ incur? he will likely incur the penalty APR, as well as an over-the-limit fee and a late fee-because VISA has to receive his payment in its office by the 20th, not have it postmarked by the 20th
There is no cash advance fee when you use your credit card at an ATM machine. false
Using your credit cards for cash advances is a relatively cheap way to borrow money because you usually do not start paying interest until the next billing period. false
Most credit cards have a​ ________ grace period from the date of the bill to make payments. 21 to 25-day
The​ ________ is the interest rate you pay on your balance if you​ don’t make your minimum payments on time. penalty rate
One of the unpleasant secrets of using your credit card for a cash advance is that the APR on the cash advance is typically lower than the APR for normal purchases. false
Which of the following is not a single-purpose credit​ card? Wells Fargo Visa
Angela noticed a list of creditors at the bottom of her credit report. Some of the inquiries were voluntary and some were involuntary. What is the difference between the​ two? Voluntary inquiries are due to your own credit​ requests; while involuntary inquiries are typically by creditors who seek to offer you a pre-approved credit offer.
More than​ ________ of the 25 biggest credit card issuers do not charge annual fees. 70%
​Typically, the credit card issuer allows you a grace​ period, which means both B and C apply
Crystal tried to use her​ Macy’s credit card at Target but was unsuccessful because her​ Macy’s credit card is a single-purpose card and can only be used at​ Macy’s. true
Your credit score may affect how much you pay for health insurance. false
Which of the following is the best strategy for controlling and managing your credit cards and open​ debt? all are good strategies
The process of mathematically evaluating your creditworthiness to obtain credit is called credit scoring
Assuming the APR on your credit card is​ 18% and your average daily balance this month was​ $10,000, what will your interest or finance charges for the month​ be? $150
By law you have certain rights in connection with the credit bureau. They are all of the above
Getting a credit card while a college student is an excellent idea because all of the above
According to the Bankcard Holders Association of​ America, about 95 percent of all bank card issuers use the adjusted balance method. false
Changes to your credit card policies and rates are usually announced via​ “________”; which are notices enclosed with your bill. bill stuffers

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