Ch. 4 Foundations in Personal Finance

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

• Getting a personal loan from a bank

• Using credit cards

• Paying cash for all purchases

• Taking out a mortgage on a house

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

• Quit borrowing money

• Get a part-time job or work overtime

• Sell something

• Borrow money from your parents to pay for the debt

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

• Go into debt

• Rent a car

• Purchase something online

• Purchase an airline ticket

What factors affect a credit score?

• Type of debt

• New debt

• Duration of debt

• All of the available

Which of the following statements is false?

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

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

• 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.

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

• 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

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

• Explore new car dealerships for the best interest rate.

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 so that you can get the lowest possible payments.

• 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 with a 20% down payment.

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.

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

• Attack your debt with intensity.

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

What is paycheck garnishment?

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

• Process of taking something back for failure to make payments

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

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

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

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

• 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.