Credit - MoneyPower. Multiple Choice Identify the choice that best completes the statement or answers the question.

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1 Credit - MoneyPower Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Which of the following is considered to be open-end credit? a. a mortgage. c. department store charge cards. b. a car loan. d. installment loans. 2. To qualify for a Federal Housing Administration (FHA) loan, a person must generally a. have at least a high school diploma. c. fulfill income guidelines. b. have one-quarter of the cost of the home d. provide two individuals to co-sign the for a down-payment. loan. 3. When a person declares bankruptcy that fact will appear on the person s credit report a. for a 3 year period b. for a 10 year period c. until the person repays all debts owed d. until the person is able to receive a new credit card 4. A person has three credit cards with very large outstanding balances and is unable to make payments on any of them. Which action should the person take? a. Notify a credit reporting agency in order to avoid a late fee. b. File for bankruptcy in order to maintain ones current credit score. c. Notify the credit card companies in order to negotiate a new payment plan. d. Contact the Internal Revenue Service in order to avoid paying income tax this year. 5. When a person brings an item to a pawnshop to obtain cash, the transaction is considered a. a collateralized loan c. an unsecured loan b. a custodial payment d. a sales agreement 6. What is meant by an uncollateralized loan? a. A loan not backed by a co-signer who agrees to cover the amount of the loan. b. A personal loan without assets to cover the loan amount. c. A home equity loan. d. A loan taken on a life insurance policy. 7. What is a credit score? a. A number used to determine how much credit to extend to a person. b. A measure used to indicate a person s gross wealth. c. A reward system that is based on the number of credit cards a person has. d. A formula based solely on a person s earnings. 8. Ellen, Barbara, and Paul all charged $1,000 on their credit cards last year. who paid the most in finance charges? a. Ellen, who generally pays off her credit c. Paul, who only pays the minimum amount card in full but occasionally will pay the each month. minimum when she is short of cash. b. Barbara, who always pays off her credit card bill in full after she receives it. d. They all paid about the same since the method of payment per month does not influence the finance charge.

2 9. Most Consumer Credit Counseling Services (CCCS): a. Charge a fee for setting up a basic budget. b. Charge a fee for setting up and administering a debt repayment plan. c. Charge a fee for educating consumers about managing their debts. d. Do not charge a fee for any of their services. 10. Stephanie has several open department store credit charge cards that she has not used in two years. There are no credit balances on any of the accounts. The effect the charge cards may have on her application for a loan or mortgage is: a. They are open accounts that she could use, will be considered in any application for credit, and could make it difficult for her to get a loan or mortgage. b. They are sometimes closed by the department store, so they will have no effect on her credit report. c. They are open accounts but they will not adversely affect her credit report because she has no used them for so long. d. They are department store credit cards that are not included on a credit report. 11. One example of a long-term retirement goal is to a. end the use of credit cards. b. close savings accounts. c. deposit at least $100,000 in a retirement account. d. invest in high risk securities. 12. Dawn graduated from high school and wants to get a credit card. How can Dawn establish credit-worthiness? a. Getting a charge account with a low credit limit and paying the bills when possible. b. Opening a checking account, making regular deposits, and avoiding penalties for insufficient funds. c. Getting a small loan with a cosigner and have the co-signer repay. d. Borrowing money from friends and relatives. 13. When a borrower fails to repay a loan and there is a co-signer on the loan, the most likely result will be a. the co-signer will be held responsible for the repayment of the entire loan plus fees or penalties. b. only the co-signer s credit report will show that there has been a default on the loan. c. the co-signer will be held responsible for one-half the repayment of the loan. d. the co-signer has the opportunity to renegotiate the loan. 14. A savings account earns the greatest amount of money when the interest on the account is compounded. a. yearly c. monthly b. quarterly d. daily 15. Josh is shopping for a car loan. A friend told him to compare the actual cost of the loan for one year expressed as a percentage from three banks. He needs to ask for the: a. Finance charge percentage c. Credit insurance percentage b. Annual percentage rate (APR) d. Finance percentage 16. A good practice when using credit cards is to routinely a. take advantage of major sales. b. use one credit card to pay debt on another credit card. c. pay the complete balance each month. d. accept all pre-approved credit card offers.

3 17. Who uses consumer credit reports in making decisions? a. Brokers c. Lenders b. Schools d. Churches 18. A creditor determines your creditworthiness based on: a. character, collateral, and capacity c. gender b. address d. education 19. Which of the following lenders charge the highest interest rate? a. bank c. pawn shop b. credit union d. finance company 20. Jim is a college senior with $50,000 in student loans. He earned $2,000 last year. He has no savings so he charged a $5,000 vacation on his credit card. How would you characterize Jim s use of credit? a. It is OK because his salary will increase significantly as soon as he graduates. b. It is irresponsible use of credit because his current income is too low. c. It is OK because he can pay it off over a long period of time. d. It s normal for college students. 21. Judi and Phil had a joint VISA credit card while they were married. They are now divorced. Who is responsible for the balanced owed on the VISA card? a. Both Judi and Phil b. Phil since he has a full time job c. Neither Phil nor Judi because they are now divorced d. The credit card company 22. How can you protect yourself against credit card fraud? a. Do not give personal information when applying for a credit card. b. Be extremely careful about disclosing account information to unsolicited callers. c. Avoid using your credit card in department stores. d. Call the credit card company to put them on alert when you are concerned. 23. A company offers direct deposit of employee s earnings. The company will still provide each employee with a statement that lists the employee s a. gross pay only. b. net pay only. c. gross pay and the amount and type of deductions only. d. gross pay, the amount and type of deductions and net pay. 24. Which factor would most likely lead to an increase the interest rate on a person s credit card? a. Number of purchases c. total amount charged b. late payments d. number of cash advances 25. Who does a credit bureau or credit reporting agency speak to when collecting information about you for your credit file? a. Your creditors and landlords c. Your employers and brokers b. Your doctors and school d. Parents and friends 26. You were approved for a loan that combines all your debts into one loan with lower payments based on a longer repayment period or lower APR. This type of loan is a: a. balloon payment loan c. collateralized loan b. predatory loan d. consolidation loan

4 27. Matt s wallet, with all his credit cards, was stolen. He needs to: a. Notify the credit card companies after he gets his next account statements to get the 800 telephone numbers to report the stolen card. b. Check the next account statements for unauthorized charges and, if so, file a complaint with the credit card company. c. Nothing because retailers will not accept charges by someone who does not own the card. d. Notify each credit card company immediately. 28. The Truth in Lending Act of 1968 requires creditors to: a. state the monthly finance charge and the Annual Percentage Rate on the monthly statement. b. adhere to federal fixed interest rates and state the monthly finance charge. c. have a clean record of services to credit card holders. d. limit the amount of money charged for credit. 29. Redlining is characterized by a lender who denies a loan: a. based on the customer s ability to repay. b. because of a customer s age. c. to customers applying for a loan over a certain dollar amount. d. to customers living in certain geographic areas. 30. Claire got a new credit card from American Bank and wants to cancel her USA credit card. The best method is to dispose of her USA credit card is to: a. put it in the garbage; the credit company will know she s closing the account when she doesn t use her card. b. cut up the card and put parts in different garbage bags. c. cut up the card, put parts in different garbage bags, and instruct the credit card company in writing or by phone to close the account. d. it doesn t matter how she disposes of the credit card if she instructs the credit card company to close the account. 31. You used your credit card to buy flowers at the florist. The dollar amount of the purchase was: a. deducted immediately from your checking account. b. added to your credit card account as a finance charge. c. added to your credit card bill and you pay for it at a later date. d. put on your credit card bill as a cash advance. 32. If you have been denied credit, a job, a license, and insurance policy, or a loan based on your credit report. You are entitled to receive a free copy of that credit report within how many days of denial? a. 30 c. 90 b. 60 d. There is no time limit 33. If you are denied credit based on your credit report, you are entitled to a: a. free copy of the credit report if you request it within 60 days. b. hearing with the credit counseling agent. c. free copy of the credit report at any time. d. a free copy of the credit card report within one year. 34. An advantage of declaring bankruptcy is: a. most debts to creditors are eliminated. b. it makes it difficult to get credit or get a mortgage. c. some of your possessions can be repossessed. d. it appears on your credit report for seven years.

5 35. Victims of predatory lending practices are typically: a. consumers who are financially literate. b. consumers who have a good credit history. c. the elderly and people with a poor credit history. d. borrowers in wealthy communities. 36. A creditor may deny credit because of: a. bad credit history c. marital status b. age d. race 37. You are behind on your debt payments and go to a responsible credit counseling service, the Consumer Credit Counseling Service. How can they help you? a. They can force those who loaned you money to forgive your debts. b. They can get the federal government to apply your income taxes to pay off your debts. c. They can cancel your credit cards without your permission. d. They can work with those who loaned you money to set up a repayment schedule you can afford to make. 38. Approximately, what is the annual finance charge for each $100 owed on a credit card with a 16% annual interest rate (APR)? a. $.84 c. $8.40 b. $1.60 d. $ How can you avoid becoming a victim of identity theft? a. Avoid giving your Social Security number on a phone call you did not initiate. b. Leave your wallet containing personal information where it can be stolen. c. Keep your PIN on your ATM card. d. Avoid using your credit card to charge purchases on the phone. 40. Consumer Credit Counseling Services (CCCS) offer: a. retirement plans c. stock and bonds b. debt repayment plans d. insurance policies 41. Ms. Jackson contracted a mortgage company about refinancing her mortgage. The mortgage company gave her a home loan with unusually high costs and without regard to her ability to repay. This practice is called: a. redlining c. predatory lending b. low-income lending d. consumer lending 42. Collateral is: a. something of value that secures a loan to protect the lender. b. something that explains your net worth. c. a form of credit. d. required for all loans. 43. Predatory lending practices generally include: a. very high interest rates and fees. b. an interest rate based on the borrower s credit history. c. repayment terms that the consumer can afford. d. responsible financial advisers.

6 44. Predatory lending practices do not include which of the following: a. a creditor knocking on your door and agreeing to refinance your mortgage without looking at your credit history. b. an individual agreeing to a high cost loan with excessive fees. c. a lender who expects a loan to be refinanced when you are unable to make payments. d. a loan that you can afford with an interest rate that is the same as the interest rate being charged by at least three other financial institutions. 45. Jane opened her credit card bill and was surprised by the amount she owed. She cannot pay the full amount of the bill this month. The lowest dollar amount Jane is required to pay by the credit card company is the: a. monthly fee payment c. minimum payment b. principal payment d. interest payment 46. Maxine has an auto loan that she has to pay. She will make monthly payments over five years. She has a(an): a. unsecured loan c. balloon payment loan b. non-installment loan d. installment loan 47. The decision to give an applicant credit is made by: a. a consumer counseling service c. creditor b. credit reporting agency d. consumer 48. Consumers who file for bankruptcy are still responsible for: a. mortgage loans c. tax claims and student loans b. credit card balances d. car loans 49. One of Andre s seldom-used credit cards has been stolen without his knowledge. When he gets his monthly statement, he realizes that someone else has been using the card and reports it stolen. The maximum amount of the unauthorized purchases he is liable for is: a. zero c. The total amount b. $50 d. $ A credit card finance charge is: a. the sales tax c. the dollar amount it costs to use credit b. the cost of the items purchased d. a service fee 51. The type of credit card issued by an oil company, bank, or department store is: a. an installment card c. a debit card b. a revolving charge card d. a cash card 52. Using someone else s money, promising to repay at a future date, and paying a fee for use of the money, is the definition for: a. interest c. investing b. credit d. taxation 53. When you mail your credit card payment on the due date, your payment will be considered: a. late, and the company will assess you a late fee. b. on time as long as the postmark is on or before the due date. c. late, but the company will not assess a fee. d. on time, because you paid it within the five-day grace period.

7 54. The Equal Credit Opportunity Act: a. Makes it illegal for creditors to grant credit on any characteristics other than those that reflect creditworthiness. b. Stimulates that credit must be available to any U. S. citizen. c. Allows credit to be denied even if the applicant has a good credit history. d. Allows credit to be denied based on the applicant s cultural background. 55. Sue bought a copy of her credit report, and found incorrect information in it. She can: a. not dispute negative incorrect information. b. request that the credit bureau correct her credit report. c. tell the creditor to remove the incorrect information removed or corrected. d. make the creditor remove the incorrect information. 56. You can continue to charge purchases on your credit card when: a. the amount you owe on this credit card is above your credit limit. b. your payments are always received by the due date. c. the amount you owe on the card is below your credit limit. d. you can afford the monthly repayments. 57. Why is maintaining a good credit history important to your future? a. Anyone can access your credit history. b. A good credit history can help you obtain a job, or a loan. c. You cannot open a savings account without a good credit history. d. It is folklore and not important. 58. When Mary bought a DVD player, she charged it on her credit card. Her purchase created a(an): a. reserve c. savings b. debt d. investment 59. John has a college student loan that he has to repay after he graduates. He will make his monthly payments over ten years. He has the following kind of loan: a. secured c. diversified b. non-installment d. installment 60. To improve an UNFAVORABLE credit rating, a person should a. pay bills on time. b. apply for more credit. c. increase the number of payroll deductions. d. open a checking account. 61. Sharon is 20 years old. She has one gas, two bank, and two department store credit cards. Her application for another credit card has been declined. The probable reason is: a. credit laws do not permit consumers to have any more than five credit cards. b. she is not old enough to get another credit card. c. the total amount she can charge on her cards is more than her ability to repay. d. she needs a financial plan. 62. Debbie was behind on her stereo installment credit contract payments. As a result, the creditor seized and sold the stereo. The sale price did not cover all of the loan balance, the creditor got a court to order her employer to withhold part of her wages. This court order is called: a. wage assignment c. garnishment b. bankruptcy d. deficiency judgment

8 Credit - MoneyPower Answer Section MULTIPLE CHOICE 1. ANS: C Open-end credit is a revolving line of credit that is offered by banks and other lenders to consumers. There is a limit set on the line of credit and the funds, products or services are accessed using a credit or debit card, check, store charge card or cash advance. Consumers pay interest on the outstanding balance. A car loan is made for a specified amount and a specific length of time and is therefore considered closed-end credit. A mortgage loan is also considered a form of closed-end credit since the house serves as collateral for the loan which is made at a specified interest rate for a specified time period. 2. ANS: C The Federal Housing Administration (FHA) insures lenders who make mortgage loans that are riskier than regular bank loans because FHA loans are made to individuals who usually would not qualify for regular low-cost mortgages from banks (usually first-time home buyers with lower income and a weaker credit score). The objective of this federal agency is to encourage home ownership while helping to protect the lenders at the same time. 3. ANS: B Most of the adverse information on a credit report appears for 7 years. After a declared bankruptcy, the limit is 10 years. 4. ANS: C When experiencing financial difficulties, the first action to take is to notify creditors, in this case the three credit card companies. Quite often the company will assist in negotiating new terms. 5. ANS: A Since pawnshops make loans based on determining the value of collateral (a tangible object such as jewelry, cameras, musical instruments) they receive, the loan is considered a collateralized loan.

9 6. ANS: B Collateral is a tangible asset that is used to secure a loan. In the case of a mortgage, the actual house or apartment serves as the collateral for that loan. The same is true of a car loan. If the person who takes the loan, defaults on that loan, the bank or other lending agency has the right to keep the collateral. Therefore, an uncollateralized loan is one that does not have an asset to support the loan. 7. ANS: A A credit score is a method used by credit grantors to determine the amount of credit to grant an applicant. A higher, good, score is achieved by paying bills on time, paying total balances on charge or credit cards, making loan payments on time, and, not having outstanding debt beyond one s ability to pay. 8. ANS: C In making the minimum payment, Paul is paying only a small portion (usually 2-4 percent) of the bill. Then interest is charged on the large unpaid balance resulting in the largest dollar amount in finance charges. Barbara, who always pays off her credit card shortly after she receives it, will pay no finance charge. 9. ANS: B CCCS's generally offer free educational programs and do not charge a fee to help people set up a basic budget. Consumer Credit Counseling Services do charge a fee for time-consuming services such as helping clients pay down their debt by creating a plan that can last several years, negotiating for clients with creditors, and making monthly payments to creditors for clients. 10. ANS: A Stephanie's credit card accounts are still open because she has not directed the creditor to close the accounts. Stephanie could use these open accounts, and they will be considered in any application for credit. If the maximum credit on the unused accounts together with the maximum credit on her active accounts add up to more than she is likely to be able to pay, it could be difficult for her to get a loan or mortgage. She should close unused credit cards. Some creditors automatically close a credit account if it has not been used for a specific period of time, usually a three-year minimum.

10 11. ANS: C Long-term goals are considered those that one needs to plan for as something that is more than five years away. Planning for retirement is considered a long-term goal. One way to accomplish this goal is to start saving money in a retirement account; either through work or through a personal investment program such as an IRA (or both). Money designated for retirement should not be invested in high-risk securities. 12. ANS: B To establish credit-worthiness, Dawn must have credit and use it responsibly. Creditors will only give new debtors small amounts of credit because creditors cannot tell whether the applicant is likely to use the credit responsibly. Having a checking account in good standing helps you to establish a record of being responsible. 13. ANS: A If the borrower does not pay the debt, the co-signer has the obligation to pay it. 14. ANS: D The most interest is earned on an account when there is daily compounding. If you have $100 in the bank at a 05% rate of interest and the interest is compounded yearly, you will have $105 at the end of the year. If the interest is compounded daily, the $100 earns 1/365th of the interest on day one; however, day two the interest is compounded not on the $100 but on $100 plus the interest earned the first day (it may only be slightly more than a penny but it adds up). Obviously, the greatest benefit of daily compounding is realized by those with larger amounts of money on deposit. 15. ANS: B The true cost of credit expressed as a percentage is the Annual Percentage Rate (APR), while the finance charge is the cost of credit expressed in dollars and is used in calculating the APR. 16. ANS: C Credit card companies charge considerable interest for not paying the complete balance each month. Therefore having a monthly balance shows the person is spending more money (charging) than the person can afford and therefore the individual is not a good money manager. It also might be a situation where the individual does not realize just how much buying on credit and not paying off the entire balance is actually costing in the long run.

11 17. ANS: C All of these businesses get credit reports from a credit reporting agency and use the information in making decisions about employment, rental housing, insurance, and credit. An applicant for employment, housing, insurance, or credit may be denied based on information in his/her credit report. 18. ANS: A When you are applying for credit, the creditor reviews your credit record to determine whether or not to give you credit. The potential creditor wants to know if you pay your bills on time, if you have enough income to pay for the credit you are requesting, and if you have too many other debts that might make it difficult to pay for the credit you are requesting. 19. ANS: C Pawnshops accept items that have a market value as collateral on cash loans given to customers. If the customer does not pay back the loan principal and interest in a specified period, the pawnshop has the contractual right to sell the item. Because pawnshops do not evaluate the debtor s creditworthiness, they charge extremely high interest rates usually to debtors with bad credit records who could not get a cash loan at traditional financial institutions. 20. ANS: B With a low income, outstanding loans, and such a large charge, he might make only be able to pay the minimum payments on his credit card debt. So, it will take him years to pay off the $5,000 vacation. The outstanding balance plus the finance charges make the cost of the vacation much more expensive than the purchase price. 21. ANS: A The creditor can collect from Judi or Phil. They are both legally responsible for paying off the joint account. 22. ANS: B Preventive measures are always the best safeguard. Potential credit issuers need to know some personal information in order to learn about your credit history and determine your creditworthiness. Information is power; keep yours secure, and give it out only when you make the call.

12 23. ANS: D Employees who take advantage of a direct-deposit program for depositing their pay checks still receive a complete payroll statement at the end of each pay period. These statements indicate gross and net pay, deductions for items such as taxes and company retirement savings plans as well as earnings to date. Health insurance as well as payroll taxes are also shown on the statement. 24. ANS: B Before setting interest rates, credit card companies look at the individual s capacity to repay outstanding obligations. If the capacity is limited then the person is likely to make late payments. 25. ANS: A Credit bureaus and credit reporting agencies get their information from stores, banks, and other creditors, as well as from public records such as court judgments. The information about a consumer is compiled by the credit bureau or credit reporting agency into a credit report that is a record of that particular consumer's transactions and payment patterns. 26. ANS: D Consolidation loans combine all your consumer credit into one loan so you have only one payment. However, consolidation loans often cost more in total finance charges because you take longer to pay off the debt. 27. ANS: D Under federal law, if a thief uses Matt's credit card or account number, the most he is liable for is $50 per card if the creditor is notified within two business days. If he contacts his card company before any unauthorized charges are made, he is not responsible for any unauthorized charges. Matt should have a list of his credit cards with account numbers and telephone numbers to call in the event his cards are stolen or lost so he can call the credit card companies immediately. 28. ANS: A The total finance charge for a billing period and the Annual Percentage Rate (APR) used to calculate the finance charge must be stated on the monthly credit card statement. There are no federally mandated interest rates or limits on the amount charged to customers for credit.

13 29. ANS: D Redlining is a form of discrimination in granting loans, insurance coverage, or other financial benefits. Lenders or insurers, who practice redlining, "draw a red line" around a troubled area of a city and vow not to lend or insure property in that neighborhood because of poor economic conditions and high default rates. Congress has enacted legislation such as the Community Reinvestment Act, which forces banks to lend to under-privileged areas, to combat redlining. 30. ANS: C People trying to use other people's credit accounts often go through the garbage to find credit cards and credit account statements, called "dumpster diving." They then use the credit card or account number to buy items using the victim's credit account. 31. ANS: C The purchase amount is immediately added to the credit card account balance by the credit card company. Your credit card statement is generated once a month on the billing cycle date. 32. ANS: B You must write or call requesting a free credit report from the credit bureau that supplied the report that was the basis of denial within 60 days of the denial. At other times, you can be charged a reasonable fee (usually $8) to buy a credit report. If you want your credit report from all three of the national credit bureaus (credit reporting agencies), you would have to buy three reports. The reports do not necessarily have the same information on them so it is important to buy a report from each of the three main credit bureaus once a year or before you plan to apply for major credit such as a car loan or mortgage. 33. ANS: A If requested within 60 days after the denial, you must be provided with a free copy of the credit report from the specific credit reporting agency whose report was the basis for credit, employment, insurance, or housing denial. At all other times, there is a small fee to get a credit report. 34. ANS: A In filing for bankruptcy, consumers say they cannot pay off their debts and ask the bankruptcy court to take some of their assets, sell them, give the money to their creditors, and consider the debts discharged. Some debts, including child support, alimony, taxes, and recent student loans are not discharged in bankruptcy and are still owed after the bankruptcy is completed.

14 35. ANS: C Predatory lending uses abusive practices in any type of credit but the lenders primarily target applicants for home mortgages, home equity, and home refinancing loans. This practice tends to occur in low-income neighborhoods, particularly those with a large number of elderly or minority homeowners who have a poor credit history, or need cash quickly. These lenders use deceptive advertising and high pressure salespeople and give repayment terms that the borrower cannot afford. 36. ANS: A The Equal Credit Opportunity Act forbids creditors to deny credit on the basis of gender, marital status, race, color, religion, national origin, or age (if applicant is old enough to enter into a binding contract, usually age 18). 37. ANS: D A credit counseling service can work out an extended repayment program with your creditors. Then, you give part of your paycheck to the counseling service each payday, and they make payments to your creditors. The counseling service is often able to work out a better repayment plan than you could negotiate by yourself. 38. ANS: D 16% of $100 = $16. However, since interest is compounded on a daily basis, the actual amount will be more than $ ANS: A The purpose of the telephone call was probably to get his personal information so the caller could use it to commit identity theft by charging purchases on Jack's credit card or get additional credit in his name. The caller could get a credit card with Jack's name, Social Security number, and address. If Jack actually won a free DVD, the caller should be willing to send information to Jack. Never give your credit card number, Social Security number, or similar personal information over the telephone unless you have placed the call to someone or a business that you know is legitimate. 40. ANS: B There are hundreds of local Consumer Credit Counseling Services (CCCS) across the country that counsel people about how to get out of debt and manage their money. They also work out debt repayment plans with a consumer's creditors in which the consumer gives CCCS part of each paycheck to pay creditors.

15 41. ANS: C Predatory lending uses abusive practices in any type of credit but the lenders primarily target applicants for home mortgages, home equity, and home refinancing loans. This practice tends to occur in low-income neighborhoods, particularly those with a large number of elderly or minority homeowners. 42. ANS: A Collateral is required for a secured loan to protect the lender. If the debtor defaults on a loan, the creditor (lender) can seize and sell the collateral to pay off the secured loan. Collateral may be the item purchased with the loan, such as a vehicle, or in a cash loan, it may be some item that can be sold to pay off the loan. 43. ANS: A Predatory lending uses abusive practices in any type of credit but the lenders primarily target applicants for home mortgages, home equity, and home refinancing loans. This practice tends to occur in low-income neighborhoods, particularly those with a large number of elderly or minority homeowners who have a poor credit history, or need cash quickly. These lenders use deceptive advertising and high pressure salespeople and give repayment terms that the borrower cannot afford. 44. ANS: D Predatory lending uses abusive practices in any type of credit but the lenders primarily target applicants for home mortgages, home equity, and home refinancing loans. This practice tends to occur in low-income neighborhoods, particularly those with a large number of elderly or minority homeowners who have a poor credit history, or need cash quickly. These lenders use deceptive advertising and high pressure salespeople and give repayment terms that the borrower cannot afford. 45. ANS: C The minimum payment is a percentage of the unpaid balance and is set by the credit card company. The minimum payment must be paid each month to avoid negative information from being sent to the credit bureau. 46. ANS: D An installment loan is one that you pay back in monthly payments for one or more years. Maxine has an auto loan. If a loan is paid back in one payment, it is called a non-installment loan.

16 47. ANS: C A credit reporting agency collects credit information from creditors and provides that information to potential creditors to interpret. The potential creditor (such as a credit card company), not the credit reporting agency, decides whether to grant an applicant credit based on information the consumer gives on the application and the information on the credit report provided by a credit reporting agency. 48. ANS: C Types of debts that are not discharged by a bankruptcy include some tax claims, alimony, child support, most student loans, claims for punitive damages for malicious or reckless acts such as driving under the influence (DUI), and state and federal income taxes. 49. ANS: B Under the Truth in Lending Act, you do not have to pay for any unauthorized charges made after you notify the card company of loss or theft of your credit card. The most you will have to pay for unauthorized charges is $50 on each card - even if someone runs up hundreds or thousands of dollars worth of charges before you report a card missing. 50. ANS: C The finance charge is the cost of credit in dollars. It is calculated on a credit card's unpaid balance. A finance charge, the cost of having the debt a longer time, is added to the outstanding credit card balance. 51. ANS: B A revolving charge account has a pre-approved dollar limit that is the most the unpaid balance can be at any specific time. When a consumer charges a purchase on the card, it raises the balance. Making a payment reduces the balance by the amount of the payment minus the finance charge owed that month. Thus, the balance "revolves" up and down as the consumer charges purchases and makes payments. 52. ANS: B The key elements of credit are using someone else's money, paying it back, and paying interest. Credit has a cost just like any other good or service, and the cost of credit is the interest. If you do not promise to pay the money you borrow in the future, the money received would be considered a gift.

17 53. ANS: A A credit card payment is considered to have been made on the date the payment is posted to the account, not when it is mailed. Since it takes several days for the payment to reach the creditor and go through the posting process, your payment would not be posted to your account "by" the due date and thus would be a late payment. 54. ANS: A The Equal Credit Opportunity Act requires that all credit applicants be considered on the basis of their actual qualifications for credit and not be turned down for credit because of certain personal characteristics, such as race, marital status, age (if 18 or older), child-bearing plans, receiving alimony or child support, or sexual orientation. 55. ANS: B If requested by the consumer, the credit bureau must reinvestigate the challenged information on a credit report, and then modify, or remove inaccurate information. The consumer cannot be charged a fee for the investigation or credit report correction. If the reinvestigation does not resolve the matter, you may file your version of the story in a brief statement, and the credit bureau must include your statement in all future reports containing the disputed item. You may also request that the credit bureau send copies of your corrected statement to anyone who has received a credit report containing the disputed item during the last six months (two years for employment reports). 56. ANS: C When the credit card account balance is greater than the credit limit, the consumer cannot charge anymore on the card because that would be more credit than he was approved. 57. ANS: B Your credit history is contained in a computerized credit record, which yields a written credit report when printed. It shows how you have paid your bills over time. No one can review your credit report without your permission. However, lenders, prospective and current employers, car dealers, landlords and check guarantee firms may obtain a copy of your credit report with your signed permission and may use it to determine your credit-worthiness. Records follow you everywhere; keep your credit report clean. 58. ANS: B A debt is created when one person owes another person, company, organization, or government money. A credit debt may be created by making a purchase with a credit card, buying large items like a car or house using a credit contract, or getting a cash loan.

18 59. ANS: D An installment loan is one that you pay back in monthly payments for one or more years. John's loan is a ten-year loan. If a loan is paid back in one payment, it is called a non-installment loan. 60. ANS: A To have a good credit rating is a valuable asset. To obtain a good credit rating a person should limit borrowing (charging) to the person s capacity to repay the amount borrowed (monthly balances). Paying bills on time shows this principle in action. 61. ANS: C Potential creditors look at the total amount that Sharon could charge on her cards relative to her experience with credit (age) and how much income she has to use to pay off the credit cards. If she already has a high total credit limit compared to her income, creditors would be concerned that she would not be able to pay off additional credit. No laws limit the number of cards she can have, how long she has to hold credit cards before getting another one, or the age she has to be. 62. ANS: C A garnishment is a court order requiring an employer to pay part of an employee's wages to the creditor. If the employer doesn't comply with the garnishment, the court may declare the employer to be held in contempt of court. A wage assignment is a contract clause in which the debtor agrees in the original contract to let the creditor ask his/her employer to withhold part of his/her wages and pay them to the creditor if the creditor shows that the employee has defaulted on a credit contract. Because a wage assignment is not a court order, an employer does not have to agree to it.