PERSONAL FINANCE UNDERSTANDING CREDIT

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Question 1

_______________ is a benefit of borrowing?

A.

the ability to buy expensive goods while spreading the payments over time

B.

providing payments that fit into a budget

C.

having a permanent record of transactions

D.

being able to purchase goods/services when checks are not acceptable

E.

all of these are benefits

Question 2

To establish your credit worthyness, you probably should first:

A.

open savings and checking accounts

B.

use credit extensively

C.

arrange for a small loan

D.

pay cash for all purchases

E.

arrange a large loan from close relatives

Question 3

Open account credit is characterized by:

A.

no credit limit

B.

a monthly credit statement

C.

annual billing

D.

minimum balance requirements

E.

none of the above

Question 4

Interest will begin to accrue immediately when you use your bank credit card to:

A.

make purchases

B.

send payments

C.

compute finance charges

D.

get cash advances

E.

all of these

Question 5

A characteristic of consumer loans is that they

A.

include a negotiated contract

B.

are arrived at through a formal process

C.

include a repayment schedule

D.

are used to purchase big-ticket, durable goods and other items

E.

are all of these

Question 6

If the information on your credit report is in dispute, you are entitled to:

A.

cross the error out, replace it with correct information and return

B.

sue

C.

erase it

D.

supply the credit bureau with your own explanation about the dispute with supporting information

E.

withdraw from the credit bureau

Question 7

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 scores than males

E.

all of the above

Question 8

To qualify for a Stafford Loan, you must

A.

demonstrate financial need

B.

visit the financial institution

C.

apply through your parents

D.

all of the above

E.

only (a) and (c) are correct

Question 9

If your installment loan has a variable interest rate:

A.

a) the rate will remain the same over the life of the loan

B.

b) the amount you borrowed will change with changes in interest rates

C.

c) you cannot accurately predict the total interest you will pay on the loan

D.

d) you can calculate the total interest you will pay on the loan

E.

e) your monthly loan payments will change every month

Question 10

Besides the finance charges, you should also consider __________ when you shop for a consumer loan.

A.

loan maturity

B.

total cost of the loan

C.

collateral

D.

repayment penalties

E.

all of the above

Question 11

As a percent of your take-home pay, monthly consumer credit payments should not exceed (Debt-safety):

A.

25%

B.

20%

C.

15%

D.

10%

E.

5%

Question 12

The majority of loans made by savings and loan associations are ______________loans.

A.

home improvement

B.

auto

C.

mortgage

D.

education

E.

consolidation

Question 13

Having a __________________ is really a second mortgage on your home.

A.

unsecured line of credit

B.

platinum American Express card

C.

home equity line of credit

D.

small business loan

E.

affinity card

Question 14

The quality of your credit rating is maintained by

A.

only using cash to make purchases

B.

using someone else's card

C.

seldom questioning billing errors

D.

using multiple credit cards

E.

meeting credit obligations as contracts require

Question 15

A single-payment loan is advantageous only if

A.

the interest rate is less than on an installment loan

B.

funds will be available to repay the lump sum

C.

figured with the discount method

D.

figured with simple interest method

E.

it is unsecured

Question 16

Annual percentage rate is equivalent to

A.

dollar cost of credit method

B.

discount method

C.

average loan balance method

D.

simple interest method

E.

Usuary laws in each state

Question 17

A credit card can provide an interest-free loan if you

A.

pay for purchases within six months

B.

pay the minimum payment

C.

receive a cash advance

D.

pay the previous balance by the due date

E.

pay the entire balance on or before the due date

Question 18

When canceling a credit card, you should cut up the card and

A.

inform the issuer in writing of the cancellation

B.

call the issuer and tell them you are canceling

C.

inform the credit reporting bureau in writing of the cancellation

D.

call the credit reporting bureau and inform them you are canceling

E.

all of the above

Question 19

Your credit card has been stolen and used by someone else. The maximum amount you could be responsible for is

A.

$0

B.

$50

C.

$100

D.

the full amount that was charged while in the wrong hands

E.

$1,000

Question 20

Chapter 7 bankruptcy will

A.

eliminate all financial obligations

B.

result in the loss of all of one's assets

C.

remain on one's credit record for up to 10 years

D.

both a and c are correct

E.

a, b and c are correct

Question 21

The monthly payment on an 8%, 36 month, add-on loan for $10,000 would be

A.

$278

B.

$300

C.

$314

D.

$344

E.

$380

Question 22

A legal claim that allows creditors to liquidate loan collateral is a

A.

loan

B.

note

C.

security claim

D.

lien

E.

none of these

Question 23

_________________ would be an indication of overspending.

A.

your checks are bouncing

B.

Collection agencies are calling you frequently

C.

all your credit cards are "maxed out"

D.

you have no cash reserves and must borrow for incidentals

E.

all of the above

Question 24

All of the following are useful ways to build a strong credit rating except

A.

open checking and savings accounts

B.

open and use a charge account

C.

apply for a long-term loan and occasionally be late with a payment

D.

make payments on time

E.

talk with the lender if you foresee difficulty in making a payment

Question 25

____________________ does not represent a line of credit

A.

retail credit card

B.

debit card

C.

overdraft protection

D.

home equity line of credit

E.

unsecured personal credit

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