Ch 6

Consumer credit can

• help us attain our financial goals.

• provide convenience when shopping or dining out.

• cause us great financial pain when used improperly.

• do all of these choices.

Acceptable uses of credit include all of the following except

• using credit to spread payments over time for big-ticket items, allowing us to use and enjoy these assets now.

• using credit to meet financial emergencies, such as borrowing to meet living expenses during a time of unemployment.

• using credit for convenience to avoid having to carry cash; convenience users keep track of their expenditures and pay their credit card bills in full each month.

• using credit to meet basic living expenses, such as buying groceries on credit because there's no money left from your paycheck.

A credit card balance of $5,000 at 15% interest with a minimum 2 percent monthly payment will take more than 32 years to pay off, but by increasing the payment to 3 percent, you can pay off the balance in half the time.

• True

• False

In establishing credit, it is important to open checking and savings accounts and to manage them well by not overdrawing.

• True

• False

Steps to take in order to build a strong credit history may include

• obtaining a credit card and making a few credit purchases each month, occasionally carrying a balance from one month to the next.

• obtaining a small loan, even if you don't need one, and repaying it over time in order to give yourself a track record.

• having no more than three late payments per year on credit card or loan payments.

• both obtaining a credit card and a small loan

You will be labeled as a "late payer" only after you have paid your credit card bill late four or five times in a year.

• True

• False

If you are unable to make a payment on time, you have no alternative other than skipping the payment.

• True

• False

The "5 Cs of Credit" stand for

• character, capacity, collateral, capital, and consumption.

• consumer debt, capacity, collateral, capital, and condition.

• character, capacity, collateral, capital, and condition.

• character, capacity, consumer payments, collateral, and capital.

A suggested credit guideline is to have no more than what percentage of your monthly take-home pay go toward consumer debt payments?

• 10 percent

• 15 percent

• 20 percent

• 25 percent

Ricardo's monthly take-home pay is $2,500. His monthly payments include his house payment of $800, his student loan payment of $200, and his car payment of $300. Which of the following is a correct statement concerning his consumer debt safety ratio?

• At 52 percent of his take-home pay, his consumer debt safety ratio is far in excess of the recommended maximum. He should immediately do what he can to reduce his debt load.

• At 20 percent of his take-home pay, his consumer debt safety ratio equals the recommended maximum. He would not want to incur any more consumer debt without paying off some of his existing debt.

• At 12 percent of his take-home pay, his consumer debt safety ratio is less than the recommended maximum. He could consider taking on a little more consumer debt if he felt it was necessary.

• At 36 percent of his take-home pay, his consumer debt safety ratio exceeds the recommended maximum. He should immediately do what he can to reduce his debt load.