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Chapter 6—Using Credit
111. Borderline credit risks would most likely receive
a.
delayed reconsideration for credit application.
b.
a limited line of credit.
c.
a negative credit rating.
d.
credit only as applied for.
e.
credit only in emergency situations.
112. Which of the following are true regarding credit scoring systems?
a.
Lower scores are better than higher scores.
b.
Scoring systems are based on statistical studies.
c.
Credit unions calculate and sell credit scores to lenders.
d.
Females receive higher score than males.
e.
All of the above are true.
113. The following information provides insight to a lender about the applicant's creditworthiness except
a.
personal/family matters
b.
housing
Chapter 6—Using Credit
c.
employment
d.
income
e.
all of the above provide insight
114. All of the following are key items lenders look at in granting credit except
a.
income.
b.
outstanding debt.
c.
stability in employment and housing.
d.
religious affiliations.
e.
credit history.
115. Finance charges on two credit cards with the same stated APR
a.
will always be the same.
b.
by federal law must be calculated the same way.
c.
will be determined by the type of credit card used.
d.
will be determined by the method used to calculate balances.
e.
none of these.
Chapter 6—Using Credit
116. For a person who sometimes pays his entire credit balance and sometimes pays the minimum payment, which
calculation method would be the least expensive?
a.
average daily balance including new purchases
b.
average daily balance excluding new purchases
c.
two-cycle average daily balance including new purchases
d.
two-cycle average daily balance excluding new purchases
e.
both b and d would produce the same, low finance charge
117. A credit card can provide an interest-free loan if you
a.
pay for purchases within six months.
b.
pay the minimum payment.
c.
pay the entire balance on or before the due date.
d.
pay the previous balance by the due date.
e.
receive a cash advance.
118. Anna uses her credit card regularly, but she pays the total balance monthly. Anna should look for a credit account
with
a.
no annual fee.
b.
low interest rates.
c.
long grace period.
d.
both a and b.
e.
both a and c.
Chapter 6—Using Credit
119. 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?
a.
no annual fee.
b.
low interest rates on balances.
c.
long grace period.
d.
method of calculating balances.
e.
a and b.
120. When canceling a credit card, you should cut up the card and ____ that you are canceling your account.
a.
inform the issuer in writing
b.
call the issuer and explain
c.
inform the credit bureau in writing
d.
call the credit bureau and explain
e.
all of the above
Chapter 6—Using Credit
121. When paying for something with a check, don't give your ____ number.
a.
Social Security
b.
credit card
c.
driver's license
d.
a and b
e.
a, b, and c
122. Which of the following household devices could help you protect yourself against identity theft?
a.
DVR
b.
Cell phone
c.
Shredder
d.
Laptop
e.
Tablet
123. Personal insolvency can be legally satisfied by
a.
Chapter 13 bankruptcy.
b.
relinquishing all credit cards.
c.
Chapter 7 bankruptcy.
d.
both b and c.
e.
both a and c.
Chapter 6—Using Credit
124. Chapter 7 bankruptcy will
a.
eliminate financial obligations.
b.
result in the loss of all one's assets.
c.
stay on one's credit record up to 10 years.
d.
a and c
e.
a, b, and c
125. Chapter 7 bankruptcy will typically
a.
eliminate most debt obligations.
b.
require monthly payments to a bankruptcy trustee.
c.
stay on one's credit record up to 12 years.
d.
a and c
e.
a, b, and c
126. Credit bureaus
a.
will send you a free copy of your credit report whenever you ask.
b.
may charge up to $20 for a copy of your credit report.
c.
are required to correct errors only when a creditor asks them to.
d.
will do all of these.
e.
will do none of these.
Chapter 6—Using Credit
127. Methods used by identity thieves to obtain personal information include all except
a.
dumpster diving.
b.
phishing.
c.
skimming.
d.
pretexting.
e.
skimping.
128. The year after the Credit Card Act of 2009 went into effect
a.
credit card balances rose.
b.
late payments increased.
c.
payment defaults declined.
d.
there was a drop in the use of debit cards relative to credit cards.
e.
a, b, and c are correct.
INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first
item, B for the second item, and C if neither item will correctly complete the statement.
129. Using [credit | savings] to handle financial emergencies is the recommended choice.
Chapter 6—Using Credit
130. A proper use of open account credit would be to buy a [food | washing machine].
131. The first step to take in establishing a credit history is to [get a credit card | open checking and savings accounts].
132. Most creditors [will | will not] be willing to work something out with you if you are having difficulty meeting your
payments.
Chapter 6—Using Credit
133. You are likely to have financial difficulty if your personal credit obligations exceed [15% | 20%] of your take home
pay.
134. Nancy's take-home income is $3,000 per month, and she currently has $700 of monthly consumer debt payments.
According to the general rules of thumb, Nancy [is | is not] in a position to take on additional consumer debt.
135. An example of open account credit would be a bank [debit | credit] card.
136. Most bank credit cards have interest rates that will [remain the same as long as you hold the card | be adjusted as
interest rates in general rise and fall].
Chapter 6—Using Credit
137. Rebate cards are most useful for consumers who charge a lot and [maintain | do not maintain] large balances on their
cards.
138. Student credit cards usually [do | do not] require parental or guardian guarantees.
139. One condition of a secured credit card is that the holder must [pay a higher rate of interest | deposit an amount equal
to the credit line into a CD].
140. Interest paid on a [home equity line of credit | credit card] would be deductible if you itemize your deductions on
your federal tax return.
Chapter 6—Using Credit
141. A person who pays his credit balance off every month should look for a credit card with a [long | short] grace period.
142. A person who pays her credit balance off every month should look for a credit card with [a low interest rate | no
annual fee].
143. The decision whether or not to grant you credit will be made by [individual creditors | the credit bureau].
144. A home equity line of credit is one of the [most | least] expensive forms of consumer credit.
Chapter 6—Using Credit
145. Your chances of being approved for a loan [increase | decrease] the higher your credit score.
146. [The Wage Earner Plan | Straight bankruptcy] involves some type of debt restructuring.
147. Most of your debts would be totally discharged under Chapter [7 | 13] of the federal bankruptcy law.
148. The most expensive method of determining finance charges on revolving credit would be [ADB including new
Chapter 6—Using Credit
purchases | ADB excluding new purchases].
149. A credit scoring system might assign points according to your annual income and [gender | age].
150. The decline in housing prices made it [harder | easier] for households to refinance their mortgages.
151. In the year after the Credit Card Act of 2009 was passed, there was a(n) [increase | decrease] in the use of debit cards
relative to credit cards.
152. In the year after the Credit Card Act of 2009 was passed, there was a(n) [increase | decrease] in defaults.
Chapter 6—Using Credit
153. In the year after the Credit Card Act of 2009 was passed, there was a(n) [increase | decrease] in late payments.
154. Lindsey has a job with monthly take-home pay of $3,500. Using the suggested maximum debt safety ratio, what
maximum debt burden per month can she assume? (Show all work.)
155. Ted and Karen have a combined take-home income of $4,500. Their total monthly payments on consumer debt are
$875. What is their debt safety ratio? Are they exhibiting any sign of approaching credit problems?
Chapter 6—Using Credit
156. You have a $926 balance on your credit card account. The minimum payment on your account is 2 percent of the
latest balance or $20, whichever is greater. What will be the minimum payment this month?
157. The APR on a credit card account is 16%. Assuming a $1,926 balance and a $40 minimum payment, how much of
the minimum payment will go to interest?
158. The market value of your house is $175,000 and you have a first mortgage balance of $100,000. If a lender requires a
80% loan-to-market value ratio, how large could your home equity loan be?
159. Jacki (a single taxpayer in the 28% marginal tax bracket) owns a home in which she has $30,000 equity, and she
itemizes deductions. She pays $1,000 interest on credit cards and $9,000 interest on her home equity loan. Calculate
Jacki's tax savings from these interest payments.
Chapter 6—Using Credit
