Chapte 6 Introduction to Consumer Credit

True/False Questions

1) When you use credit, you satisfy needs today and pay for their satisfaction in the future.  

2. Credit is an arrangement to receive cash, goods, or services now and pay for them in the future.

3. Consumer credit refers to the use of credit for personal needs (except a home mortgage) by individuals.

4. Most consumers have only one choice in financing current purchases
5. Most consumers have three alternatives in financing current purchase.
6. Consumer credit is based on trust in people's ability and willingness to pay bills when due.
7. Consumer credit works because people by and large are dishonest and irresponsible.
8. Consumer credit dates back to World War II.
9. Consumer credit dates back to colonial time.  
10. Most economists do not recognize consumer credit as a major force in the American economy.

11. The aging of the baby boom generation has added to the growth of consumer credit
12. There are very few valid reasons for using credit.
13. "Shopaholics" and young adults are most vulnerable to misusing credit.  
14. College students are not a prime target for credit card issuers.

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15. Credit when effectively used, can help you have more and enjoy more.   
16. It is safer to use credit, since charge accounts and credit cards let you shop and travel without carrying large amounts of cash.
17. The use of credit can provide up to a 15-day "float."
18. The use of credit indicates personal and financial instability.
19. Perhaps the greatest disadvantage of using credit is the temptation to overspend.
20. Although credit allows more immediate satisfactory of needs and desires, it does not increase total purchasing power.

21. With an open-end credit, you pay back one-time loans in a specified period of time in equal amounts.

22. Closed-end in credit is used for a specific purpose and involves a specified amount.  
23. In a closed-end credit, generally the seller holds title to the merchandise until the payments have been completed.

24. The three most common types of closed-end credit are installment sales credit, installment cash credit, and single lump-sum credit.

25. Installment sales credit is a loan that allows you to receive high-priced items, such as large appliances or furniture.

26. Installment cash credit is a direct loan of money for personal purposes, home improvements, or vacation expenses.

27. Single lump-sum credit is a loan that must be repaid in total on a specified day, usually within 30 to 90 days.

28. Using a credit card, such as Visa or MasterCard is an example of closed-end credit.
29. A line of credit is the maximum dollar amount of credit the lender has made available to you.  
30. Interest is a periodic charge for the use of credit, or other finance charges.  
31. Incidental credit is a credit arrangement that has no extra costs and no specific repayment plan.

32. Many retailers use open-end credit.
33. Many retailers use closed-end credit
34. A bank line of credit is a pre-arranged loan for a specified amount that you can use by writing a special check.

35. The credit cardholders who pay off their balances in full each month are known as convenience users.

36. Cobranding has become increasingly unpopular since General Motors launched its credit card in 1992.

37. Cobranding is the linking of a credit card with a business trade name offering "points" or premiums toward the purchase of a product or service.

38. In the near future, smart cards will provide a crucial link between the World Wide Web and the physical world.

39. There is no real difference between credit cards and debit cards.

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40. Debit cards are often called bank cards, ATM cards, cash cards, and check card
41. If your debit card is lost or stolen, you must work directly with the issuer.
42. Smart cards are embedded with a computer chip that can store 500 times the data of a credit card.

43. You should sign your new credit cards as soon as they arrive.
44. Department stores and gasoline companies are good places to obtain your first credit car
45. A home equity loan is based only on the amount you still owe on your mortgage
46. A home equity loan is usually set up as a revolving line of credit, typically with a variable interest rate.

47. In a revolving line of credit borrowings are permitted up to a specified limit and for a stated period
48. A home equity loan is a good source of credit for daily expenses.
49. The debt-payment-to-income ratio is calculated by dividing your total liabilities by your net worth.

50. The debt-to-equity ratio is calculated by dividing your monthly debt payments (not including house payments) by your net worth.

51. Experts suggest that you spend no more than 20 percent of your net income on credit payments.

52. The debt-to-equity ratio is calculated by dividing your total liabilities by your net worth.  

53. If your debt-to-equity ratio is about ½, you have reached the upper limit of debt obligations.
54. If your debt-to-equity ratio is about 1, you have probably reached the upper limit of debt obligations.

55. The smaller the debt-to-equity ratio, the riskier the situation is for lenders and borrowers.
56. The larger the debt-to-equity ratio, the riskier the situation is for lenders and borrowers.
57. The debt-to-equity ratio is calculated by dividing your monthly debt payments (not including house payments) by your net worth.

58. Some studies show that as many as three out of four cosigners are asked to repay the loan.
59. When you cosign a loan, you are being asked to guarantee this debt.
60. A lender requires a cosigner even when a borrower meets the lender's criteria for making a loan.

61. If you consign, the creditor can collect this debt from you without first trying to collect from the borrower.

62. If you consign and the debt is not paid off, that fact does not become a part of your credit record.

63. Most creditors do not rely heavily on credit reports in considering loan applications.
64. The Federal Trade Commission receives more consumer complaints about credit bureaus than about any other industry.

65. The accuracy of credit reports has worsened recently.
66. The Fair Credit Reporting Act regulates the use of credit reports, requires the deletion of

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obsolete information, and gives consumers access to their files.

67. Credit bureaus obtain their data from banks, finance companies, merchants, credit card companies, other creditors and court records.
68. Your credit report may be issued to properly identified persons for approved purposes.
69. Your friends and neighbors can get credit information about you.
70. Most of the information in your credit file may be reported for only seven years. If you have declared personal bankruptcy, that fact may be reported for 10 years.

71. It is legal for creditors to ask or assume anything about a woman's childbearing plans.
72. The Equal Credit Opportunity Act is very specific about how a person's age may be used in credit decisions.

73. In the 5 Cs of credit, capacity refers to the borrower's attitude toward his or her credit obligations.

74. In the 5 Cs of credit, character refers to the borrower's morals.
75. In the 5 C's of credit, character refers to borrower's attitude toward credit obligations.
76. In the 5 Cs of credit, capacity refers to borrower's financial ability to meet credit obligations.
77. In determining capacity, your other financial obligations and monthly expenses are not

considered before credit is approved.

78. In the 5Cs of credit, capital refers to your assets or net worth.
79. In the 5Cs of credit, capital refers to your financial ability to meet credit obligations.

80. In the 5Cs of credit, collateral is an asset that you pledge to a financial institution to obtain a loan.

81. A lender can not repossess the collateral if you fail to repay the loan.  
82. In the 5Cs of credit, conditions refers to general economic conditions that can affect your ability to repay a loan.
83. A creditor may turn you down or decrease your credit because of your age.
84. A creditor may ignore your retirement income in rating you application.
85. A creditor may require you to reapply for credit because you have reached a certain age or retired.

86. You may not be denied credit because you receive Social Security or public assistance.
87. The Fair Credit Billing Act, passed in 1975, sets the procedures for promptly correcting billing errors.
88. If you think your bill is wrong, notify your creditor in writing within 15 days after the bill was mailed.

89. The Fair Credit Billing Act has a provision in which a lender can threaten your credit rating while you are resolving a billing dispute.

90. If you can prove that a lender has discriminated against you for any reason prohibited by the Equal Credit Opportunity Act, you may sue for actual damages plus punitive damages.
91. Identity theft is the fastest-growing financial crime.
92. If someone has stolen your identity, the FTC recommends that you contact the fraud departments of each of the three major credit bureaus.