Family Finance Exam 2 Chapter 6

Front 1

The single best indicator of the true cost of credit is the...

Back 1

annual percentage rate.*

Front 2

The cost of borrowing money stated in dollars is the

Back 2

finance charge.*

Front 3

Credit whereby you borrow a specific amount to be repaid over a specified time period with nearly equal payments is called.

Back 3

Installment credit*

Front 4

When calculating the interest owed for the month on a credit card the lender multiplies the periodic rate times ___________?

Back 4

the average daily balance*

Front 5

If you report a lost or stolen credit card to your lender the most you can possibly lose is

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$50.*

Front 6

When you apply for credit the decision to accept you or not is made by the

Back 6

the lender.*

Front 7

If your credit card has an APR of 12% and your average daily balance is $1000 (no grace period), your interest for the month is

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$10.*

Front 8

A clause in a loan contract that makes all future payments immediately payable if the loan is in default is called a(n)

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acceleration clause.*

Front 9

If an item of collateral is repossessed, it may still be possible to owe more money because of a(n)

Back 9

deficiency balance*

Front 10

Which process refers to a court order to an employer to send a portion of a borrower’s wages to a lender to whom the borrower has defaulted ?

Back 10

garnishment*

Front 11

Under which type of bankruptcy are many of the debtors assets sold and the proceeds go to pay as much as possible on the debts?

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Straight Bankruptcy (Chapter 7)*

Front 12

The type of mortgage loan where the interest rate stays the same and the mortgage is for a specified number of years (e.g., 30) at that rate is called a

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Conventional mortgage.*

Front 13

Which of the following are tax advantages of buying a home on a mortgage?

Back 13

a. Mortgage interest is tax-deductible
b. Real estate property taxes are tax-deductible
c. When you sell the home all or part of the profit (capital gains) can be exempt from taxes

Front 14

The interest portion of the monthly payment on a fixed-rate mortgage

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Goes down over the life of the mortgage.*

Front 15

What is the monthly payment on a $200,000 home with $100,000 down for 20 years at 6%?

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The answer is $716.43 obtained by using Table 9.3 on page 245.

Front 16

If your credit card has an APR of 12% and your average daily balance is $1000 (no grace period), your interest for the month is

Back 16

$10

Front 17

notices that make insistent demands for payment on a credit account.

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Dunning letters

Front 18

What scores are the most prominent type of credit scoring system.

Back 18

FICO®

Front 19

Non-business debt used by consumers for purposes other than home mortgages is called

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consumer credit.

Front 20

A single-payment loan is an example of

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noninstallment credit.

Front 21

A loan taken out to pay all your other loans in an attempt to lower the total monthly payment is called a(n)

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debt-consolidation loan.

Front 22

Credit granted by public utilities that do not require that you pay in advance is referred to as

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service credit

Front 23

Which of the following allows you to provide information requested by a lender when you are applying for credit?

Back 23

a credit application

Front 24

The finance charge on most credit accounts is calculated by

Back 24

multiplying the periodic rate times the average daily balance.

Front 25

The law that requires that you be told the contents of your file at a credit bureau if you ask is the

Back 25

Fair Credit Reporting Act.

Front 26

Which of the following laws allows you to withhold payment for the disputed amount after notifying the lender if you are billed in error for an item on your credit card statement?

Back 26

Fair Credit Billing Act

Front 27

a credit arrangement where the borrower must repay the amount owed in a specific number of equal payments, usually monthly.

Back 27

Installment credit is

Front 28

a form of noninstallment credit.

Back 28

Open-ended credit is

Front 29

By law, the finance charge on a credit arrangement must include all mandatory charges including interest.

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True

Front 30

Bank credit card lenders are permitted to assess an annual fee ranging from

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$25 to $50 (or more).

Front 31

Travel and entertainment accounts work just like revolving charge accounts.

Back 31

False

Front 32

Very few people use service credit.

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False

Front 33

Credit bureaus make decisions for lenders as to whom to grant credit.

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False

Front 34

Secured credit cards use a bank savings account deposit as collateral.

Back 34

True

Front 35

If you do not pay the required amount on a revolving charge account by the due date, you will be in default.

Back 35

True

Front 36

Most credit card accounts have a grace period only if the previous balance was paid in full and on time.

Back 36

True

Front 37

Property offered and pledged to secure repayment of a loan and subject to seizure should the borrower fail to repay the loan is called

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Collateral

Front 38

A credit arrangement whereby the borrower agrees to repay the amount owed in a specific number of nearly equal payments is referred to as

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Installment Credit

Front 39

The single best indicator of the true cost of credit is the

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Annual Percentage Rate

Front 40

A charge for exceeding your credit limit on a credit card is called the

Back 40

Over-limit-fee

Front 41

What is the much higher interest rate charged by credit card lenders if the account holder has not followed the rules of the account?

Back 41

Default rate

Front 42

Standard bank cards with the logo of the sponsoring organization, such as the Sierra Club, imprinted on the face of the card are referred to as

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Affinity Cards

Front 43

A temporarily low interest rate used to entice a borrower to sign up for a new credit card is called a(n)

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Introductory Rate

Front 44

Which of the following is an assessment of the historical creditworthiness of an individual?

Back 44

Credit Rating

Front 45

Who decides your credit worthiness when you apply for credit?

Back 45

The Lender

Front 46

If you do not make additional charges on a credit card on which you are carrying a previous balance you can assume that paying the minimum payment will result in full repayment of the debt in about

Back 46

Eight Years

Front 47

Credit grantors often use credit ____________________ to assess the likelihood of repayment by an applicant.

Back 47

Scores

Front 48

Any time a debtor fails to pay the required principal or interest on time or otherwise fails to comply with a key requirement of a legal credit agreement they are said to be

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In Default

Front 49

The APR for a charge account divided by the number of billing periods per year is the

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Periodic Rate

Front 50

The time period between two billing dates on a credit card account is called the

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Billing Cycle

Front 51

In which of the following methods for computing the average daily balance might you be required to pay a finance charge even though you paid your balance in full during the previous month?

Back 51

average daily balance including new purchases with no grace period

Front 52

It is possible to carry a balance on a revolving charge account for years without ever paying the debts off completely.

Back 52

True

Front 53

A credit card grace period is the time period between the posting date of a transaction and the due date, within which any new credit card purchases will avoid finance charges.

Back 53

True

Front 54

Credit card billing errors can be corrected under procedures outlined in the Equal Credit Opportunity Act.

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False

Front 55

A credit arrangement that includes single-payment loans and open-ended credit is referred to as

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noninstallment credit.

Front 56

What the lender charges you in dollars to borrow money is called

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The Finance Charge

Front 57

You can continue to make use of a revolving account as long as

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the amount owed is below your credit limit.

Front 58

If a credit card lender feels that the account holder has had, or may have, trouble paying the debt, even if the problem is on another account with a different lender, they might declare the borrower to be in ________________ and begin charging a higher default rate. a

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Universal Default

Front 59

VISA and MasterCard are examples of

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Bank Credit Card Accounts

Front 60

A process for creating a statistical measure to rate applicants for credit on the basis of various factors relevant to creditworthiness and the likeliness of repayment is called

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credit scoring.

Front 61

Agencies that provide lenders with financial information on credit applicants are called

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Credit Bureaus

Front 62

If you fail to pay by the due date, you are said to be in

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Default

Front 63

Which of the following criteria can be legally used when rejecting a credit applicant?

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Poor Credit History

Front 64

Which of the following is usually an unnecessary expenditure because many companies waive credit card liability for lost or stolen cards and most people have such coverage under homeowners insurance?

Back 64

Credit Card Insurance

Front 65

Notices that make insistent demands for repayment of a debt are called

Back 65

Dunning Letters

Front 66

Which of the following need not be disclosed in advertising for credit cards and on credit card applications?

Back 66

Finance Charge

Front 67

The single best indicator of the true cost of credit is the

Back 67

Annual Percentage Rate

Front 68

The cost of borrowing money stated in dollars is the

Back 68

Finance Charge

Front 69

Credit whereby you borrow a specific amount to be repaid over a specified time period with nearly equal payments is called.

Back 69

Installment Credit

Front 70

When calculating the interest owed for the month on a credit card the lender multiplies the periodic rate times ___________?

Back 70

Average Daily Balance

Front 71

If you report a lost or stolen credit card to your lender the most you can possibly lose is

Back 71

$50