Personal Finance Chapter 4

1.

4 points

A credit score is intended to measure:

Your financial success

Your income level

The risk of your not repaying debt

The amount of money you have in the bank

2.

4 points

Which of the following is a sign that your identity may have been stolen?

A call from a collection agency about a debt you didnʹt incur

Bank and billing statements donʹt arrive on time

Your credit report shows accounts you didnʹt open

All of the above

3.

4 points

Which of the following is NOT a factor in determining a FICO score?

Taking out a mortgage on a house

Paying cash for all purchases

Getting a personal loan from a bank

Using credit cards

4.

4 points

What is paycheck garnishment?

Process by which the holder of a mortgage sells the property of a homeowner who has fallen behind on payments

Process of taking something back for failure to make payments

A legal procedure for dealing with debt problems of individuals and businesses

A court-ordered attachment that allows a lender to take monies owed directly from a borrowerʹs paycheck

5.

4 points

If you are a victim of identity theft, you are only responsible for paying back half of the debt.

True

False

6.

4 points

You must establish credit in order to buy a house.

True

False

7.

4 points

An adjustable rate mortgage (ARM) is a good idea.

True

False

8.

4 points

Which of the following best summarizes how the use of a credit card for purchases instead of cash can change oneʹs spending behavior?

Studies show that there is no change in spending behavior whether a person uses cash or credit.

People typically spend less when they know that they are earning credit card ʺrewards.ʺ

Studies show that consumers typically spend more when using credit as opposed to cash purchases.

Spending behavior does not matter as long as you pay off the credit card balance each month.

9.

4 points

You need to have a credit card to rent a car or check in to a hotel.

True

False

10.

4 points

If you do not have a FICO score, what factors will determine whether or not you qualify for a mortgage?

History of rental and utility payments

Amount of your down payment and employment history

You cannot get a mortgage without a credit history

A and B

11.

4 points

There are three credit bureaus: Experian, TransUnion and Equifax.

True

False

12.

4 points

What factors affect a credit score?

Type of debt

New debt

Duration of debt

All of the above

13.

4 points

Under the Fair Credit Reporting Act (FCRA), any person or organization may check a personʹs credit information without having a legitimate need.

True

False

14.

4 points

Which of the following things CANNOT be done with a debit card but can be done with a credit card?

Purchase an airline ticket

Purchase something online

Rent a car

Go into debt

15.

4 points

Which of the following statements is FALSE?

Prior to the FCRA, consumers were unable to challenge errors in their credit reports.

The U.S. Congress enacted the Fair Credit Reporting Act to address concerns over consumer credit report accuracy, privacy and fairness.

Under FCRA, creditors must notify consumers if they deny credit based on a credit report file, and they must also tell the consumer which of the three credit bureaus provided the report.

Under FCRA, consumers are allowed to receive one free credit report every five years.

16.

4 points

The Federal Trade Commission (FTC) is one of many U.S. federal agencies that regulate the consumer credit system and enforce the laws related to it.

True

False

17.

4 points

Teens are a huge target of credit card companies today.

True

False

18.

4 points

Which of the following is NOT a credit myth?

The lottery and other forms of gambling will make you rich.

Debt is a tool and should be used to create prosperity.

You have ʺarrivedʺ financially once you get approved for a credit card.

Borrowing money can have serious consequences and prevent you from building wealth.

19.

4 points

Which of the following is NOT recommended in the debt snowball method of getting out of debt?

List your debts in order from smallest to largest balance and focus on paying the smallest debt off first.

Attack your debt with intensity.

Every extra dollar you get should be thrown at the largest debt first.

Every time you pay off a debt, you add its old minimum payment to your next debt payment.

20.

4 points

Which of the following is NOT a recommended step in the Drive Free method of purchasing a car?

Start with an inexpensive car and gradually move up in car value as your savings increases.

Plan your purchase in advance using the sinking fund method of saving.

Place your savings in a mutual fund so that your money can make more money.

Explore new car dealerships for the best interest rate.

21.

4 points

Which of the following is the most cost-effective option for purchasing a home?

Get a 15-year mortgage with a 5% down payment.

Get a 30-year mortgage with a 20% down payment.

The most ideal way to buy a house is with 100% down; if that is not an option, you should get no more than a 15-year, fixed rate mortgage with a down payment of at least 10%.

Get a 30-year mortgage so that you can get the lowest possible payments.

22.

4 points

You can and should obtain a free copy of your credit report annually in order to check for any suspicious activity.

True

False

23.

4 points

Co-signing a loan is a good way to help a friend or relative.

True

False

24.

4 points

Which of the following is NOT a good idea for getting out of debt?

Get a part-time job or work overtime

Quit borrowing money

Borrow money from your parents to pay for the debt

Sell something

25.

4 points

Individual account information is removed from your credit report seven years after the last activity on the account, except for Chapter 7 bankruptcy, which stays on your credit report for

1 year

EVER!

20 years

10 years