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Finance 3300 > Chapter 6 > Flashcards

Chapter 6 Flashcards

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1
Q

Define credit.

A

An arrangement to receive cash, goods or services now, but pay for them in the future

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2
Q

Define consumer credit.

A

the use of credit for personal needs (except a home mortgage) by individuals and families

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3
Q

Credit is good for (2)

A

medical emergencies, buying cars

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4
Q

Misuse of credit results in (2)

A

defaulting, bankruptcy

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5
Q

(T/F) Credit is safer than cash.

A

True

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6
Q

Give three examples of closed-end credit.

A

mortgage loans, automobile loans, installment loans

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7
Q

Give three examples of installment loans.

A

installment sales contract, installment cash credit, single lump-sum credit

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8
Q

Give three examples of open-end credit.

A

Visa/Mastercard; Diners Club/Amex; overdraft protection

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9
Q

What is closed-end credit?

A

one-time loan for a specific purpose that’s paid back in equal amounts over a specified time period

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10
Q

Give an example of an installment sales credit.

A

furniture loan

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11
Q

Given an example of an installment cash credit.

A

cash loan

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12
Q

Give an example of a single lump-sum credit.

A

delay frig payment 90 days

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13
Q

How do you use open-end credit?

A

use as needed until reaching line of credit max

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14
Q

When are T&E cards’ balances due?

A

due in full each month

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15
Q

What is revolving credit?

A

prearranged line of credit loan where checks are written as needed (HELOC)

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16
Q

What fraction of U.S. households carry 1+ credit cards?

A

7/10

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17
Q

What percentage of credit card users pay balances in full each month?

A

45%

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18
Q

What percentage of credit card users carry balances and pay financing charges each month?

A

55%

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19
Q

Is using a credit card for cash advances a good idea?

A

no — it’s expensive because you have to pay interest and advance fees

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20
Q

What is co-branding?

A

linking a credit card with a business offering rebates on products and services

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21
Q

Home equity loans are based on

A

the difference between current market value of your home and the amount owed on the mortgage

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22
Q

With home equity loans, you typically borrow

A

up to 80% of the home value

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23
Q

Home equity loans are set up like

A

a revolving line of credit with check book

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24
Q

(T/F) Interest on a home equity loan is not deductible.

A

False, interested IS deductible

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25
Q

What are the consequences if a home equity loan payment is missed?

A

bank can foreclose

26
Q

How do we calculate the debt payments-to-income ratio?

A

monthly payments/net monthly income (not including house payments, which is considered a long-term liability)

27
Q

How do we calculate the debt-to-equity ratio?

A

total liabilities/net worth* (*excluding home value)

28
Q

The debt-to-equity ratio should be less than

A

1

29
Q

(T/F) If a payment on a co-signed loan is missed, the creditor can collect the debt directly from you instead of first going to the borrower.

A

True

30
Q

What percentage of co-signers end up repaying loans?

A

75%

31
Q

What is the range for FICO credit scores?

A

300-850

32
Q

What is the preferred credit score for a home loan?

A

760

33
Q

What is the preferred credit score for an auto loan?

A

720

34
Q

Give the name for the three biggest credit bureaus.

A

Experian, TransUnion, Equifax

35
Q

The FTC gets how many complaints about credit bureaus each year?

A

36,000

36
Q

When was the Fair Credit Reporting Act passed?

A

1971

37
Q

What is the purpose of the Fair Credit Reporting Act?

A

to regulate the use of credit reports

38
Q

Adverse data on a credit report can be reported for

A

7 years

39
Q

Bankruptcy on a credit report can be reported for

A

10 years

40
Q

If a credit report dispute is unresolved, what can you do?

A

send in a 100-word statement

41
Q

What are the 5 C’s (what creditors look for)?

A

character; capacity; capital; collateral; conditions

42
Q

[5 C’s] Define character.

A

Do you pay bills on time?

43
Q

[5 C’s] Define capacity.

A

Can you repay the loan?

44
Q

[5 C’s] Define capital.

A

What are your assets and net worth?

45
Q

[5 C’s] Define collateral.

A

What property can you pledge that the lender can repossess, if you default?

46
Q

[5 C’s] Define conditions.

A

What economic conditions could affect your ability to repay the loan?

47
Q

When was the Fair Credit Billing Act passed?

A

1975

48
Q

If there’s a credit mistake, you can notify the creditor of the error in writing within

A

60 days

49
Q

Creditors must respond to a notification of error within

A

30 days

50
Q

Credit card companies have how long to correct a bill on your account?

A

2 billing periods, but no more than 90 days

51
Q

(T/F) Your credit score is affected while a credit bill is in dispute.

A

False

52
Q

What can you do if you buy a damaged/shoddy good?

A

You can withhold payment if you have paid for them with a credit card and you make a sincere attempt to resolve the problem with your creditor

53
Q

Credit balanced must be refunded within

A

7 business days, if you request it

54
Q

All credit balances must be refunded if

A

in your account for over 6 months

55
Q

What should you do if your identity is stolen?

A

contact fraud department of all 3 major credit bureaus and tell them to flag your file with a fraud alert; include a statement that creditors should call you for permission before opening any new accounts in your name

56
Q

What do the Truth in Lending and Consumer Leasing Acts deal with?

A

APR

57
Q

What does the Equal Credit Opportunity Act deal with?

A

discrimination

58
Q

What does the Fair Credit Billing Act deal with?

A

billing errors

59
Q

What does the Fair Credit Reporting Act deal with?

A

disclose who reports bad marks

60
Q

What does the Consumer Credit Reporting Reform Act deal with?

A

free credit report

61
Q

What does the Credit Card Accountability, Responsibility and Disclosure Act deal with?

A

higher minimum payment

Finance 3300 (15 decks)

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