Chapter 6—Using Credit
1. Using credit is the ideal way to provide for financial emergencies.
a. True
b. False
2. Saving is the preferred way to provide for financial emergencies.
a. True
b. False
3. Paying only the minimum payment each time on a credit card usually enables one to pay off the balance fairly quickly.
a. True
b. False
4. One can be overusing credit even though he can afford to make minimum monthly payments on time.
a. True
b. False
Chapter 6—Using Credit
5. Credit should not consistently be used for nondurable goods.
a. True
b. False
6. Credit cards with very low minimum payment requirements are in the consumer’s best interest.
a. True
b. False
7. 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.
a. True
b. False
8. Never adding up all your bills is one of the signs that you may be headed for serious credit problems.
a. True
b. False
Chapter 6—Using Credit
9. 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.
a. True
b. False
10. Having a checking account tells a creditor that you have some experience in managing your own funds.
a. True
b. False
11. Always paying cash is helpful in establishing a high level of creditworthiness.
a. True
b. False
12. Having arranged and fully repaid a small loan should help improve creditworthiness.
a. True
b. False
Chapter 6—Using Credit
13. The purpose of a credit report is to evaluate the kind of risk you pose to the lender.
a. True
b. False
14. Credit reports are routinely used to predict creditworthiness.
a. True
b. False
15. Paying a loan off much quicker than scheduled is one way to build a good credit rating.
a. True
b. False
16. A debt safety ratio of 25% might be a signal of financial trouble ahead.
a. True
b. False
Chapter 6—Using Credit
17. A debt safety ratio of 15% would generally be a signal of financial trouble ahead.
a. True
b. False
18. It is safe, and often required, to give your Social Security number as a form of identification when using a credit card.
a. True
b. False
19. The most common forms of open account credit are bank credit cards and retail charge cards.
a. True
b. False
20. The most common form of open account credit is the debit card.
Chapter 6—Using Credit
a. True
b. False
21. Auto loans are an example of open account credit since you can add to the debt when you purchase another vehicle.
a. True
b. False
22. A credit limit refers to the maximum amount the cardholder can owe the issuer at any point in time.
a. True
b. False
23. The key to creditworthiness is to keep your debt safety ratio as high as possible.
a. True
b. False
Chapter 6—Using Credit
24. Credit reports on individual borrowers are issued by credit bureaus.
a. True
b. False
25. Credit reports on individual borrowers are issued by credit card issuers.
a. True
b. False
26. Being late on credit payments only 2-3 times per year may label you a “late payer” in your credit file.
a. True
b. False
27. The required monthly payment on an open account will be the smaller of a minimum dollar amount or a specified
percentage of the balance.
a. True
b. False
Chapter 6—Using Credit
28. Bank credit cards represent the most common kind of open account credit.
a. True
b. False
29. Bank credit card purchases always begin accruing interest charges immediately.
a. True
b. False
30. Advantages of balance transfers can include lower interest rates and the convenience of consolidation.
a. True
b. False
31. Credit card statements must be sent out at least 21 days before the due date.
a. True
b. False
Chapter 6—Using Credit
32. College students without verifiable income cannot be issued credit cards.
a. True
b. False
33. Rebate credit cards work best for those who use the rebates, charge a lot, and do not carry high monthly balances.
a. True
b. False
34. Generally speaking, the interest rates on credit cards are lower than any other form of credit.
a. True
b. False
35. Credit card payments received the next business day after a holiday or weekend due date are considered on time.
a. True
b. False
Chapter 6—Using Credit
36. Your account with the utility company is an example of open account credit.
a. True
b. False
37. Interest rates on credit cards tend to be lower than most other forms of consumer credit.
a. True
b. False
38. Most organizations that issue credit cards have basically the same qualifications for card applicants.
a. True
b. False
39. Credit cards often have penalties for late payment and for exceeding credit limits.
a. True
Chapter 6—Using Credit
b. False
40. Open account credit is a form of credit extended to a consumer in advance of any transaction.
a. True
b. False
41. The most common method used by lenders to apply finance charges to credit cards is the average daily balance
including new purchases method.
a. True
b. False
42. As a rule, the smaller the bank or S&L, the more likely it is to charge an annual fee for its credit cards.
a. True
b. False
Chapter 6—Using Credit
43. Credit card users can often avoid finance charges entirely by paying their total balances by the stated due date.
a. True
b. False
44. Secured credit cards require that the cardholder put up collateral in order to get the card.
a. True
b. False
45. Student credit cards are structured much differently than regular credit cards.
a. True
b. False
46. Due to the Credit Card Act of 2009, finance charges can no longer be calculated using the double-cycle billing
approach.
a. True
b. False
Chapter 6—Using Credit
47. Debit cards look like credit cards, but they work like checks.
a. True
b. False
48. With prepaid cards, there is no established line of credit.
a. True
b. False
49. Prepaid cards are referred to as electronic wallets.
a. True
b. False
50. Revolving credit lines are often accessed by writing checks.
a. True
b. False
Chapter 6—Using Credit
51. Unsecured lines of credit provide tax advantages if you itemize deductions.
a. True
b. False
52. Unsecured lines of credit are easy to use and often use some form of collateral as default protection.
a. True
b. False
53. The proceeds of a home equity loan can be used for just about any purpose, and the interest paid is usually tax
deductible.
a. True
b. False
54. One can lose his home if he does not repay his home equity line of credit.
a. True
b. False
Chapter 6—Using Credit
55. Home equity loans are one of the least expensive forms of consumer credit.
a. True
b. False
56. 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.
a. True
b. False
57. For a fee, credit bureaus can provide credit scores for prospective borrowers.
a. True
b. False
Chapter 6—Using Credit
58. Credit bureaus provide information about prospective borrowers.
a. True
b. False
59. One can and should check his credit bureau file regularly.
a. True
b. False
60. Credit bureau files often include information such as political and religious affiliations in addition to financial
information.
a. True
b. False
61. Credit scoring systems are often used by lenders to determine your creditworthiness.
a. True
b. False
Chapter 6—Using Credit
62. Chapter 7 bankruptcies can remain in your credit file for up to 10 years.
a. True
b. False
63. A credit card user’s credit rating will be harmed if she pays only the minimum monthly payment on a credit card.
a. True
b. False
64. The more credit cards one has, the better one’s credit score.
a. True
b. False
65. Generally, finance charges are computed only on the unpaid balance from previous months’ purchases.
a. True
b. False
Chapter 6—Using Credit
66. The most common method of computing finance charges on a credit card is the average daily balance method
including new purchases.
a. True
b. False
67. The amount of finance charges one pays on a credit card depends only on APR and the amount one charges.
a. True
b. False
68. The intent of the Wage Earner Plan is to provide an alternative to straight bankruptcy.
a. True
b. False
69. A Chapter 13 bankruptcy filing results in the discharge of most of your debts.
a. True
b. False
Chapter 6—Using Credit
70. 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.
a. True
b. False
71. The majority of persons filing bankruptcy file Chapter 7 bankruptcy.
a. True
b. False
72. The Wage Earner Plan requires debtors to give up most of their assets.
a. True
b. False
73. Before filing for bankruptcy, debtors should consider seeking the help of a credit counselor.
a. True
Chapter 6—Using Credit
b. False
74. Filing Chapter 7 bankruptcy eliminates one’s obligation to pay past-due alimony and child support payments.
a. True
b. False
75. 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.
a. True
b. False
76. If your credit card company increases your interest rate, the new rate can only be applied to new charges, not to
preexisting balances.
a. True
b. False