Foundations in Personal Finance Chapter 4 Business Test

Which of the following is not a factor in determining a FICO score?A) Getting a personal loan from a bank B) Using credit cardsC) Paying cash for all purchases D) Taking out a mortgage on a house C
Which of the following is not a good idea for getting out of debt?A) Quit borrowing moneyB) Get a part-time job or work overtimeC) Sell somethingD) Borrow money from your parents to pay for the debt D
Which of the following things cannot be done with a debit card but can be done with a credit card?A) Go into debtB) Rent a carC) Purchase something onlineD) Purchase an airline ticket A
What factors affect a credit score? A) Type of debtB) New debtC) Duration of debtD) All of the above D
Which of the following statements is false?A) Prior to the FCRA, consumers were unable to challenge errors in their credit reports.B) Under FCRA, consumers are allowed to receive one free credit report every five years.C) The U.S. Congress enacted the Fair Credit Reporting Act to address concerns over consumer credit report accuracy, privacy and fairness.D) Under FCRA, creditors must notify consumers if they deny credit based on a credit report file, and they must also tell the consumer which of the three credit bureaus provided the report. B
Which of the following is not a recommended step in the Drive Free method of purchasing a car? A) Plan your purchase in advance using the sinking fund method of saving.B) Place your savings in a mutual fund so that your money can make more money.C) Start with an inexpensive car and gradually move up in car value as your savings increases.D) Explore new car dealerships for the best interest rate. D
Which of the following is the most cost-effective option for purchasing a home? A) Get a 15-year mortgage with a 5% down payment.B) Get a 30-year mortgage so that you can get the lowest possible payments.C) The most ideal way to buy a house is with 100% down; if that is not an option, you should get no more than a 15-year, fixed rate mortgage with a down payment of at least 10%.D) Get a 30-year mortgage with a 20% down payment. C
Which of the following is not recommended in the debt snowball method of getting out of debt? A) List your debts in order from smallest to largest balance and focus on paying the smallestdebt off first.B) Every extra dollar you get should be thrown at the largest debt first.C) Attack your debt with intensity.D) Every time you pay off a debt, you add its old minimum payment to your next debt payment. B
What is paycheck garnishment?A) A court-ordered attachment that allows a lender to take monies owed directly from ais paycheck garnishment? 9) borrowerʹspaycheckB) Process of taking something back for failure to make paymentsC) Process by which the holder of a mortgage sells the property of a homeowner who has fallen behind on paymentsD) A legal procedure for dealing with debt problems of individuals and businesses A
Which of the following best summarizes how the use of a credit card for purchases instead of cash can change oneʹs spending behavior?A) Spending behavior does not matter as long as you pay off the credit card balance each month.B) Studies show that there is no change in spending behavior whether a person uses cash or credit.C) People typically spend less when they know that they are earning credit card ʺrewards.ʺD) Studies show that consumers typically spend more when using credit as opposed to cashpurchases. D
Which of the following is not a credit myth? A) The lottery and other forms of gambling will make you rich.B) You have ʺarrivedʺ financially once you get approved for a credit card.C) Debt is a tool and should be used to create prosperity.D) Borrowing money can have serious consequences and prevent you from building wealth. D
If you do not have a FICO score, what factors will determine whether or not you qualify for a mortgage?A) History of rental and utility paymentsB) Amount of your down payment and employment history C) You cannot get a mortgage without a credit historyD) A and B D
A credit score is intended to measure: A) Your financial successB) The risk of your not repaying debtC) Your income levelD) The amount of money you have in the bank B
Which of the following is a sign that your identity may have been stolen? A) A call from a collection agency about a debt you didnʹt incurB) Bank and billing statements donʹt arrive on timeC) Your credit report shows accounts you didnʹt openD) All of the above D
Individual account information is removed from your credit report seven years after the lastactivity on the account, except for Chapter 7 bankruptcy, which stays on your credit report for:A) 1 year B) 10 years C) 5 years D) 20 years B
You must establish credit in order to buy a house. FALSE
If you are a victim of identity theft, you are only responsible for paying back half of the debt FALSE
There are three credit bureaus: Experian, TransUnion and Equifax. TRUE
You can and should obtain a free copy of your credit report annually in order to check for any 19) suspicious activity TRUE
You need to have a credit card to rent a car or check in to a hotel FALSE
It is okay to use a credit card if you pay it off every month. FALSE
The Federal Trade Commission (FTC) is one of many U.S. federal agencies that regulate the consumer credit system and enforce the laws related to it. TRUE
Under the Fair Credit Reporting Act (FCRA), any person or organization may check a personʹs credit information without having a legitimate need. FALSE
Teens are a huge target of credit card companies today. TRUE
Co-signing a loan is a good way to help a friend or relative. FALSE
Preferred method of debt repayment; includes a list of all debts organized from smallest to largest balance; minimum payments are made to all debts except for the smallest, which is attacked with the largest possible payments (credit counseling, debt snowball) DEBT SNOWBALL
A detailed report of an individualʹs credit history (credit report, cash flow statement) CREDIT REPORT
Time frame that a loan agreement is in force, and before or at the end of which the loan should either berepaid or renegotiated (loan term, loan financing) LOAN TERM
Cost of borrowing money on an annual basis; takes into account the interest rate and other related fees on a loan (annual percentage rate (APR), annual fee) ANNUAL PERCENTAGE RAET (APR)
A decrease or loss in value (inflation, depreciation) DEPRECIATION
A yearly fee thatʹs charged by the credit card company for the convenience of the credit card (interest rate,annual fee) ANNUAL FEE
An interest rate charged to a customer during the early stages of a loan; the rate often goes up after a specified period of time (introductory rate, new customer fee) INTRODUCTURY RATE
A long-term rental agreement on a car; a form of secured long-term debt (loan, lease) LEASE
When a person owes more on an item (like a car or house) than it is worth, the person is said to be (secured,upside down) on the loan. UPSIDE DOWN
A card issued by a bank that allows users to finance a purchase (credit card, debit card) CREDIT CARD
Describe the difference between a secured and an unsecured loan An unsecured loan is given to borrowers based on their financial resources or ability to repay the loan; a secured loanis usually needed when borrowing large amounts of money. The loan is ʺsecuredʺ with collateral (an asset that canbe taken if the loan is not paid).
Explain why an adjustable rate mortgage (ARM) is a bad idea. there is increased risk of losing your home if your rate adjusts higher or you lose your job and your paymentbecomes too much for you to afford.
Explain why financing a car is a bad idea You end up paying more of your car because of interest
Describe the negative consequences of taking on debt. What effect can debt have on your 39) future? You could go bankruptcy and may not be able to ever get out of debt. You are limited to what you can do
What are some things you can do to protect your personal information? Use a paper shredder and destroy credit card offers and other documents with personal information, check your credit report annually, create strong passwords and keep them confidential, purchase identity theft protection, never give out your Social Security number unless absolutely necessary.
Explain how the debt snowball works. You keep paying of the least expensive debt until you have all of your debt payed off
What should you do if you think you are a victim of identity theft? Obtain a copy of your credit report and look for any suspicious activity; place a fraud -victim alert on your credit bureau report; if your wallet is stolen, cancel all cards immediately, get replacements, and place a ʺstop paymentʺ on all lost or stolen cards; file a police report and keep a copy of the report for your personal records; report any suspicious charges and accounts to the appropriate credit issuers and credit bureaus immediately and cancel the accounts.

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