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web.groovymark@gmail.com
- December 18, 2024
Question 21
Who are “subprime borrowers”?
a) Borrowers with the best credit histories and low interest rates
b) Borrowers with poor credit histories who pay higher interest rates for loans
c) Borrowers who have no credit history
d) Borrowers who only qualify for government loans
Answer: b) Borrowers with poor credit histories who pay higher interest rates for loans
Explanation: Subprime borrowers are individuals with less favorable credit histories, and they are often charged higher interest rates because of the increased risk they pose to lenders.
Question 22
What is a “FICO score”?
a) A measure of a person’s likelihood to repay a loan, ranging from 300 to 850
b) A score used only for mortgage approvals
c) A rating based on a person’s income and assets
d) A score assigned by the government to determine tax liability
Answer: a) A measure of a person’s likelihood to repay a loan, ranging from 300 to 850
Explanation: The FICO score is a widely used credit scoring system that evaluates a person’s creditworthiness, with higher scores indicating lower credit risk.
Question 23
What does “denied credit” mean?
a) A person’s credit application is declined due to a lack of credit history
b) A person is turned down for credit, and must be provided with a reason why
c) A person cannot receive more than one credit card at a time
d) A person is unable to make payments on existing credit cards
Answer: b) A person is turned down for credit, and must be provided with a reason why
Explanation: Denied credit refers to an individual’s credit application being rejected, and by law, the issuer must explain the reason for the denial.
Question 24
What is “credit utilization ratio”?
a) The ratio of credit card debt to personal income
b) The percentage of available credit a borrower is using compared to their total credit limit
c) The amount of credit a person is eligible for based on their FICO score
d) The amount of interest paid on outstanding credit card balances
Answer: b) The percentage of available credit a borrower is using compared to their total credit limit
Explanation: The credit utilization ratio is a key factor in determining a person’s credit score, with a high ratio potentially lowering the score and a low ratio indicating responsible credit use.
Question 25
What is a “credit monitoring service”?
a) A service that tracks spending habits on credit cards
b) A company that provides regular access to your credit report and score
c) A service that ensures no fraudulent charges are made on your credit card
d) A government agency that regulates credit card interest rates
Answer: b) A company that provides regular access to your credit report and score
Explanation: Credit monitoring services allow consumers to keep track of changes in their credit reports and scores, helping to detect potential identity theft or credit issues early.
Question 26
What is a “negative option” in business practices?
a) A service provided at no charge to customers
b) A practice where goods or services are provided automatically unless the customer declines in advance
c) A business practice that requires customers to sign a contract before receiving goods
d) A practice where customers are given a discount for paying in advance
Answer: b) A practice where goods or services are provided automatically unless the customer declines in advance
Explanation: Negative options occur when a business automatically enrolls customers in a service or sends goods, and the customer must actively decline or cancel the service to avoid being charged.
Question 27
What is the “Fair Credit Reporting Act” (FCRA)?
a) A law that requires lenders to charge fair interest rates
b) A law that regulates how credit reports are used and allows consumers to challenge inaccurate information
c) A law that limits the amount of debt a person can accumulate
d) A law that requires all individuals to have access to their credit score
Answer: b) A law that regulates how credit reports are used and allows consumers to challenge inaccurate information
Explanation: The FCRA governs the collection, dissemination, and use of consumer credit information, ensuring that credit reports are accurate and that consumers can dispute errors.
Question 28
What is a “consumer statement” in a credit report?
a) A summary of all outstanding debts a consumer owes
b) A consumer’s version of disputed information when a credit bureau refuses to remove incorrect items from their credit report
c) A legal statement that authorizes a credit bureau to obtain a credit report
d) A detailed report of a person’s financial assets
Answer: b) A consumer’s version of disputed information when a credit bureau refuses to remove incorrect items from their credit report
Explanation: A consumer statement allows individuals to explain disputed information on their credit report if the credit bureau does not agree to remove or correct the entry.
Question 29
What does it mean to be “overindebted”?
a) Having a low credit score and a high income
b) Having excessive personal debt that makes repayment difficult and causes financial distress
c) Having no access to credit or loans
d) Being denied credit despite having no outstanding debts
Answer: b) Having excessive personal debt that makes repayment difficult and causes financial distress
Explanation: Being overindebted means that an individual has accumulated too much debt relative to their ability to repay, often leading to financial strain.
Question 30
What is “collateral” in lending?
a) A co-signer required for a loan
b) Something of value pledged as security for repayment of a loan
c) A document outlining the terms of a loan agreement
d) A type of loan offered to low-risk borrowers
Answer: b) Something of value pledged as security for repayment of a loan
Explanation: Collateral is an asset, such as a car or property, that is pledged by a borrower to secure a loan, which can be seized by the lender if the borrower defaults.
Question 31
What is a “credit statement” or “billing statement”?
a) A detailed report of a consumer’s assets and liabilities
b) A periodic report issued by a credit card company showing recent transactions and the balance due
c) A government-issued report on a consumer’s financial standing
d) A document that lists outstanding debts owed to creditors
Answer: b) A periodic report issued by a credit card company showing recent transactions and the balance due
Explanation: A credit statement provides credit card holders with a summary of their recent transactions, payments made, and the amount owed to the credit card issuer.
Question 32
What is a “home equity credit line”?
a) A loan based on the borrower’s credit score
b) A loan secured by the borrower’s home equity, allowing them to borrow up to a certain amount
c) A type of credit card with a high spending limit
d) A loan that does not require any form of collateral
Answer: b) A loan secured by the borrower’s home equity, allowing them to borrow up to a certain amount
Explanation: A home equity credit line is a revolving line of credit secured by the borrower’s home equity, allowing them to borrow money as needed, up to a pre-approved limit.
Question 33
What is the “billing cycle” for credit cards?
a) The time period between when a credit card is issued and when it expires
b) The time period between two consecutive billing statements, usually about one month
c) The time period required for a credit card application to be approved
d) The time period during which a borrower must pay off the full balance to avoid
Answer: b) The time period between two consecutive billing statements, usually about one month
Explanation: The billing cycle is the period during which credit card transactions are recorded, and it typically lasts about one month, after which the cardholder receives a billing statement.
Question 34
What is the “statement date” or “billing date” on a credit card statement?
a) The last day of the month for which transactions are recorded on the statement
b) The date by which a payment must be made to avoid late fees
c) The date when the credit card application was approved
d) The date when the cardholder’s credit limit is increased
Answer: a) The last day of the month for which transactions are recorded on the statement
Explanation: The statement date marks the end of the billing cycle, and all transactions that occurred during that cycle are included on the credit card statement for that month.
Question 35
What is a “credit receipt”?
a) A formal document verifying a loan application
b) Written evidence of a return or refund on a credit card purchase
c) A receipt for the full payment of a credit card balance
d) A summary of all charges made on a credit card during the billing cycle
Answer: b) Written evidence of a return or refund on a credit card purchase
Explanation: A credit receipt is provided when a credit card holder returns an item and receives a refund, showing that the transaction amount will be credited back to their account.
Question 36
What is the “average daily balance” on a credit card?
a) The balance owed on a credit card at the end of each month
b) The sum of the outstanding balances owed each day during the billing period, divided by the number of days in the billing period
c) The balance that must be paid in full each month to avoid interest charges
d) The highest balance owed during the billing cycle
Answer: b) The sum of the outstanding balances owed each day during the billing period, divided by the number of days in the billing period
Explanation: The average daily balance is used to calculate finance charges on a credit card and is determined by averaging the balances over the billing cycle.
Question 37
What is the “penalty rate” or “default rate” on a credit card?
a) The standard interest rate applied to all credit cards
b) The highest interest rate charged when a cardholder violates the terms of the card agreement
c) The lowest interest rate available to subprime borrowers
d) The rate charged for paying off the balance in full each month
Answer: b) The highest interest rate charged when a cardholder violates the terms of the card agreement
Explanation: The penalty rate, or default rate, is a high interest rate imposed when a cardholder fails to meet the terms of the credit card agreement, such as missing a payment.
Question 38
What is a “card registration service”?
a) A service that provides fraud protection for credit cards
b) A service that notifies credit card companies if a card is lost or stolen
c) A service that monitors a cardholder’s spending habits
d) A service that helps cardholders increase their credit limits
Answer: b) A service that notifies credit card companies if a card is lost or stolen
Explanation: A card registration service helps cardholders by notifying all companies with which they have debit or credit cards if their cards are lost or stolen, helping to prevent fraud.
Question 39
What is a “chargeback” in credit card transactions?
a) A refund provided when a purchase is returned
b) A dispute resolution process that allows consumers to challenge unauthorized charges
c) A penalty fee charged for late payments
d) A process that increases a cardholder’s available credit
Answer: b) A dispute resolution process that allows consumers to challenge unauthorized charges
Explanation: A chargeback occurs when a consumer disputes a charge on their credit card for reasons such as undelivered goods or unauthorized transactions.
Question 40
What is an “annuity”?
a) A one-time lump sum payment made to a retiree
b) A stream of regular payments to be received in the future, typically for retirement income
c) A government benefit paid to all retirees
d) A loan that must be repaid with interest
Answer: b) A stream of regular payments to be received in the future, typically for retirement income
Explanation: An annuity is a financial product that provides a series of payments to an individual, often used as a retirement income strategy.
