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Exam 6: Using Credit

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Question 21

Multiple Choice

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Which of the following is the correct formula for calculating the debt safety ratio?

A) Total Monthly Consumer Credit Payments ÷ Monthly Take-Home Pay
B) Monthly Take-Home Pay ÷ Total Monthly Consumer Credit Payments
C) Total Monthly Consumer Credit Payments ÷ Gross Monthly Pay
D) Gross Monthly Pay ÷ Total Monthly Consumer Credit Payments
E) Gross Monthly Pay ÷ Monthly Take-Home Pay

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Question 22

Multiple Choice

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The "5 Cs of Credit" are:

A) character, capacity, collateral, cash flow, and condition.
B) character, cash flow, collateral, capital, and condition.
C) character, capacity, collateral, capital, and convenience.
D) character, capacity, compensation, capital, and condition.
E) character, capacity, collateral, capital, and condition.

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Question 23

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_____ are the credit cards issued in conjunction with a sponsoring group-most commonly some type of charitable, political, or professional organization.

A frequent flyer card can be aptly classified as a(n) :

You should not give your credit card account number over the phone to people or organizations who call you.

Using credit is the ideal way to meet basic living expenses.

Which of the following is an example of phishing?

For a fee, local credit bureaus can provide credit information to members about prospective borrowers in their community.

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. A FICO score above [ 700 | 800 ] is considered exceptional.

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. Cardholders who fail to make the minimum monthly payment on their credit card account are considered to be [ in default | overdrawn ] on their account.

Any credit card purchase will effectively be an interest-free loan if you have a zero balance when the grace period begins and you:

You have a $926 balance on your credit card account. The minimum payment on your account is 2% of the latest balance or $20, whichever is greater. What will be the minimum payment this month?

Which of the following is not requested in a typical credit card application?

The most common method used by lenders to apply finance charges on credit cards is the average daily balance (ADB) method, including new purchases.

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. Information provided on a credit application is used by the lender to try to determine whether the applicant has the character and [ capacity | condition ] to handle the debt in a prompt and timely manner.

Credit offered in the form of _____ is most common in department and clothing stores and other high-volume outlets, where customers are likely to make several purchases each month.

Mike has a MasterCard with an annual fee of $25, an 18% interest rate, and a $1,000 credit limit. He always pays the total outstanding balance monthly. His most recent monthly statement lists the previous month's payment, new charges in the current month totaling $1,500, and a $30 fee. The fee is most likely the result of:

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. A person who does not pay her credit balance in full every month should look for a credit card with [ a low interest rate | no annual fee ].

An unsecured personal credit line is a form of revolving credit.

Which of the following forms of consumer credit is among the cheapest and offers limited tax deductions?