Chapter 3 Review: Types of Credit

Which of the following is an example of credit?

• Getting a certificate of deposit (CD) from the bank

• Paying for college with money your parents helped save

• Splitting the cost of a meal with a friend

• Taking out a mortgage to buy a home

Choose the option that best completes this sentence: When using a credit card…

• you will pay interest whether or not you pay your bill every month.

• you are transferring money from your savings account directly to another party.

• you are getting a short-term loan to allow you to purchase an item now which you can pay for later.

• you always have the option to wait to make a payment because late payments don’t affect your credit.

Which of the following is usually a secured debt?

• Student loan

• Auto loan

• Credit card

• Personal Loan

Pretend you take out a 30-year fixed rate mortgage for $250,000. Which of the following statements would be true?

• The payment amount you owe every month will be the same

• The amount of interest you pay every month will be the same

• The amount of principal you pay every month will be the same

• You will not be allowed to pay more than the amount due every month

Mustapha needs a $3000 loan to buy a used car so he can take a job not accessible by public transportation. Which loan structure would result in the HIGHEST TOTAL COST?

• Make a $500 down payment, then pay $500 per month from his paychecks until the debt is paid off.

• Make a $1500 down payment, then pay $500 per month from his paychecks until the debt is paid off.

• Make a $500 down payment, then pay the $150 minimum monthly payments required until the debt is paid off.

• Don't make a down payment, but pay the $150 minimum monthly payments required until the debt is paid off.

Which description best fits what is meant when someone talks about their credit card APR?

• The total amount of purchases they charge on an annual basis

• The remaining balance left on a credit card once the minimum monthly payment is made

• The average credit score each person is assigned based on their payment history

• The percent the credit card company charges you for the benefit of receiving a temporary loan from them

Which statement includes one real benefit from shopping with a credit card?

• You may earn cash back, travel rewards, or other perks for each dollar you spend

• Most stores will give you a discount if you pay with credit instead of cash or debit

• It pulls money directly from your bank account, preventing you from overspending

• If you do not have the money to pay your monthly bill, you can just wait a few months and pay the same amount then

The following high school seniors each bought $1500 of stuff to bring to college with them in the fall. Each one used a credit card with similar terms to make their purchases. Which student will end up paying the MOST for their purchases.

• Robert, who makes $300 payments per month until the debit is $0

• Stephan, who pays the first $1000 using graduation money and then pays $250 per month until the debt is $0

• Nelson, who makes the minimum monthly payment each month until the debt is $0

• Joan, who can't afford to make any payments and plans to put off the debt until she gets a summer job next year

Which of the following statements best explains the purpose of a Schumer box?

• Gives the lender a clear report of your credit history and creditworthiness for a new card

• Calculates the total interest you will be charged on your previous month's purchases

• Gives the borrower a clear description of the APR, fees, and other major conditions of their credit card

• Provides a list of all purchases made on a credit card and the price of each item, for the benefit of the lender and the borrower

Mia doesn't have any credit history, so she's going to open a secured credit card to begin building her credit. She puts down an $800 security deposit. What feature of an unsecured credit card is Mia's security deposit most like?

• the APR

• the term

• the credit limit

• the annual fee