Financial Education and Career Planning

Review Quiz Unit-4

Credit and Credit Cards

Question 1

The maximum amount of money a creditor will extend to a customer.

A) Loan Term

B) Credit Limit

C) Grace Period

D) Debt

Question 2

The length of time given to pay off a loan.

A) Loan Term

B) Credit Limit

C) Grace Period

D) Debt

Question 3

The total sum of money owned to all lenders by one person (or company).

A) Loan TermB) Credit LimitC) Grace PeriodD) Debt

Question 4

The amount of time between using credit and having interest charges accumulate.

A) Loan Term

B) Credit Limit

C) Grace Period

D) Debt

Question 5

The amount charged by creditor for using their money (interest charged on an outstanding balance)

A) Loan TermB) Credit LimitC) Finance ChargeD) Debt

Question 6

A rating used by credit card companies to decide who to lend money to, or to set the terms under which they will lend money to someone.

A) CreditB) Credit ScoreC) Credit HistoryD) Credit Card

Question 7

Using the 20-10 rule, a person earning $2,000 a month should not have monthly credit payments that exceed:

Use the 20-10 rule – apply 10% to the monthly income (.10) * ($2,000) = $200

A) $200B) $20C) $40D) $400

Question 8

A common advantage of using credit is:

A) ability to obtain needed items nowB) lower cost for items purchasedC) less impulse buyingD) lower chance of overspending

Question 9

To be within a safe debt load, your total credit should not exceed 20% of your net pay after subtracting rent.

This question is false, and is the same as

question 14.

Rent or mortgage payments are not deducted from income before applying the 20-10 rule.

Question 10

If you are denied credit, the creditor is not legally obligated to explain why.

This statement is false. A creditor will usually also tell you which credit service provided them with information so that you can request to view the same data.

Question 11

Your credit report is available to anyone, regardless of the reason

This statement is false, generally you must consent to allow someone access to your credit report, people or companies are not allowed open access to it.

Question 12

It is legal for a creditor to deny an applicant credit based on marital status or age.

This is a false statement and would represent discrimination

Question 13

A steady employment record helps a person’s credit history.

This is a true statement

Question 14

To be within a safe debt load, your total credit should not exceed 20% of your net pay after subtracting rent.

A) TrueB) False

Rent or mortgage payments are not deducted from income before applying the 20-10 rule.

Question 15

Using the 20-10 rule, a person earning $3,000 a month should not have total debt that exceed:

$3,000 * 12 = $36,000 per year. The 20% rule for a person earning $36,000 per year => (.20) * ($36,000) = $7, 200

A) 300B) 600C) 6,000D) 7,200

Question 16

George uses his credit card to purchase Celtics playoff tickets and spends $2,000 for four good seats. George has to pay 19.84% interest but figures if he pays $50.00 each month it won’t cost him very much in finance charges. At $50 per month how long will it take George to pay off his credit card?

A) 40 monthsB) 44 monthsC) 55 monthsD) 66 monthsE) 77 months

Question 17

George uses his credit card to purchase Celtics playoff tickets and spends $2,000 for four good seats. George has to pay 19.84% interest but figures if he pays $50.00 each month it won’t cost him very much in finance charges. At $50 per month, how much in finance charges will George pay before his credit card is paid off?

A) Approximately$400.00B) Approximately $1,300C) Approximately $2,000D) Approximately$2,700E) Approximately $3,400

Question 17

George uses his credit card to purchase Celtics playoff tickets and spends $2,000 for four good seats. George has to pay 19.84% interest but figures if he pays $50.00 each month it won’t cost him very much in finance charges. At $50 per month, how much in finance charges will George pay before his credit card is paid off?

At 19.84% and $50 per month George will pay off the credit card inabout 65 payments, for a total of $3,250 which represents interestcosts of $1,250. The last payment is over by $44.61 so the total costcan be reduced to $3205.39 and the total interest can be reduced to $1205.39.

A) Approximately$400.00B) Approximately $1,300C) Approximately $2,000D) Approximately$2,700E) Approximately $3,400

Question 18

George uses his credit card to purchase Celtics playoff tickets and spends $2,000 for four good seats. George has to pay 19.84% interest but figures if he pays $50.00 each month it won’t cost him very much in finance charges. If George pays $90.00 per month instead of $50.00 how much money will he save in finance charges to pay off his credit card?

A) Approximately $2,500B) Approximately $1,220C) Approximately $790D) Approximately $510E) Approximately $195

Question 18

George uses his credit card to purchase Celtics playoff tickets and spends $2,000 for four good seats. George has to pay 19.84% interest but figures if he pays $50.00 each month it won’t cost him very

much in finance charges.

At 19.84% and $50 per month George will pay off the credit card in about 65 payments, for a total of $3,250 which represents interest costs of $1,250. The last payment is over by $44.61

so the total cost and total interest can be reduced to $3205.39 and 1205.39 respectively.

If George pays $90 per month, he will make about 28 payments, which is$2,520 in total payments, and an overpayment of $59.08 on the last payment) to bring the total

paymentsdown to $2,460.91, which is $460.91 in interest.

George will save 1205.39 - $460.91 = $744.48 in interest charges by making $90.00 monthly paymentsinstead of $50.00. If you didn’t adjust for the overpayment of the last payments or rounded differentlythat was done here, then you might have a slightly lower or slightly higher final answer, but $790.00should still the be answer to choose.

A) Approximately $2,500B) Approximately $1,220C) Approximately $790D) Approximately $510E) Approximately $195