Chapter 8 (Managing your Credit)

Question 1

a credit card that is honored by a specific retail establishment

Answer 1

retail (proprietary) credit card

Question 2

maximum amount of credit allowed

Answer 2

credit limit

Question 3

allows purchase beyond credit limit

Answer 3

overdraft protection

Question 4

credit cards, such as gold or platinum cards, issued by a financial institution to individuals who have an exceptional credit standing

Answer 4

prestige cards

Question 5

period between time of purchase and when payment is due

Answer 5

grace period

Question 6

may be fixed, variable, or tiered

Answer 6

types of interest rates

Question 7

the interest that you must pay as a result of using credit

Answer 7

finance charge

Question 8

• most frequently used

- interest charged on average daily balance at the end of every day in the billing period

Answer 8

average daily balance method

Question 9

interest charged on the balance at the beginning of the new billing period

Answer 9

previous balance method

Question 10

interest is charged based on the balance at the end of the new billing period

Answer 10

adjusted balance method

Question 11

What are the three types of finance charges?

Answer 11

• average daily balance method
• previous balance method
• adjusted balance method

Question 12

the percentage of credit that must be paid as interest on an annual basis

Answer 12

simple interest rate

Question 13

the simple interest rate including any fees charged by the creditor

Answer 13

annual percentage rate (APR)

Question 14

the larger the interest rate, the higher the…

Answer 14

interest payments

Question 15

a plan proposed to the court in which you repay at least a portion of your debt and pay attorney and filing fees

Answer 15

personal bankruptcy

Question 16

What are the warning signs you’ve got to much debt?

A. you have less to spend than you used
B. you can’t sleep because you worry about your bills
C. you don’t have an emergency fund
D. All of the above

Answer 16

D. all of the above

Question 17

Ideally, all your monthly debt, including your mortgage, should amount to no more than how much of your gross income?

A. 20%
B. 36%
C. 42%
D. 50%

Answer 17

B. 36%

Question 18

What’s the worst kind of debt you can have?

A. mortgage
B. credit card
C. school loan
D. car loan

Answer 18

B. Credit card

Question 19

If you make minimum payments on your credit card balance every monty:

A. you’re fine and can continue to charge
B. you can use any money you have left over to invest in stocks
C. it may take decades and thousands of dollars to pay it off
D. you risk ruining your credit rating

Answer 19

C. it amy take decades and thousands of dollars to pay it off

Question 20

What should you look for on your credit reports?

A. late payments
B. charges you didn’t make
C. accounts you thought you had closed.
D. all of the above

Answer 20

D. all of the above

Question 21

When buying a home, you should put every dime you’ve got towards the down payment?

Answer 21

False

Question 22

Good debt is:

A. borrowing money for anything you really want but can’t afford
B. borrowing money for anything you really need but can’t afford
C. borrowing money to pay off your child’s debt
D. an oxymoron

Answer 22

C. Borrowing money for anything you really need but can’t afford

Question 23

When should you borrow against a 401K?

A. when you have no other options
B. when you’re young
C. when you expect to be in a lower tax bracket in retirement
D. when yo plan on quitting your job

Answer 23

A. when you have no other options

Question 24

It’s best to take out a home equity loan when:

A. you want to put in a pool
B. you want to pay off your credit card debt
C. you want to renovate your kitchen
D. you want to take a much deserved second honeymoon

Answer 24

C. you want to renovate your kitchen

Question 25

What’s more important when taking out a car loan?

A. you gotten the monthly payment you asked for
B. you get a competitive interest rate

Answer 25

B. you get a competitive interest rate