Personal Finance Chapter 4 Test Flashcards

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Questions and Answers

What is an annual fee?

A yearly fee charged by the credit card company for convenience (correct)

A one-time application fee for credit

A fee charged for late payments

A fee for using an ATM

What does APR stand for?

Annual Percentage Rate

What is a credit card?

A type of card issued by a bank that allows users to finance a purchase.

What does a credit report provide?

A detailed report of an individual's credit history. Signup and view all the answers

What is a credit score?

A measure of an individual's credit risk calculated from a credit report. Signup and view all the answers

What is the debt snowball method?

A preferred method of debt repayment organizing debts from smallest to largest balance. Signup and view all the answers

What does depreciation mean?

A decrease or loss in value. Signup and view all the answers

What is an introductory rate?

An interest rate charged during the early stages of a loan. Signup and view all the answers

What is a loan term?

The time frame a loan agreement is in force. Signup and view all the answers

What is a tax deduction?

An expense that can be deducted from one's taxable income. Signup and view all the answers

What is personal debt?

The amount of money an individual person owes. Signup and view all the answers

How much did people without a high school diploma spend playing the lottery?

$173 Signup and view all the answers

How much did college graduates spend on the lottery?

$49 Signup and view all the answers

A car loses ____% of its value in the first four years.

70% Signup and view all the answers

When you use cash instead of plastic, you spend -% less because spending cash hurts.

12-18% Signup and view all the answers

The _____ is slave to the lender.

borrower Signup and view all the answers

What are the five steps to get out of debt?

Quit borrowing more money, save money, sell something, get a part-time job or work overtime, use the debt snowball method. Signup and view all the answers

What does FICO stand for?

Fair Isaac Corporation Signup and view all the answers

The FICO score is an 'I love ____' score.

debt Signup and view all the answers

What are the five components of the FICO score?

Debt history, new debt, debt levels, duration of debt, type of debt. Signup and view all the answers

What is the fastest growing crime in North America today?

Identity Theft Signup and view all the answers

What are the three main credit bureaus?

Experian, TransUnion, Equifax Signup and view all the answers

What should you do if you think you are a victim of identity fraud?

Obtain a copy of your credit report, place a fraud-victim alert, cancel all cards, file a police report. Signup and view all the answers

You must establish credit in order to buy a house.

False Signup and view all the answers

If you are a victim of identity theft, you are only responsible for paying back half of the debt.

False Signup and view all the answers

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

Paying cash for all purchases Signup and view all the answers

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

Borrowing money from your parents to pay off the debt Signup and view all the answers

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

Go into debt Signup and view all the answers

Why is an adjustable rate mortgage (ARM) a bad idea?

Because it can adjust and go up too much. Signup and view all the answers

Explain why financing a car is a bad idea.

Because the value of the car depreciates quickly. Signup and view all the answers

What are the negative effects of taking on debt?

If you owe people money, you become a slave; you should be investing your own money. Signup and view all the answers

What are some things you can do to protect your personal information?

Use a shredder, check your credit report annually, create strong passwords, purchase identity theft protection. Signup and view all the answers

What is the average car loan duration in months?

65 Signup and view all the answers

What is Radio-frequency identification (RFID)?

It is the wireless use of electromagnetic fields to transfer data for tracking objects. Signup and view all the answers

What is foreclosure?

The process by which the holder of a mortgage sells the property of a homeowner who has not made payments on time. Signup and view all the answers

What is repossession?

The process of a lender taking something back for failure to make payments. Signup and view all the answers

What is bankruptcy?

A legal procedure for dealing with debt when an individual or business cannot repay what they owe. Signup and view all the answers

What is garnishment?

A court-ordered attachment that allows a lender to take money owed directly from a borrower's paycheck. Signup and view all the answers

What does delinquency mean?

Broadly refers to a borrower not being current on their payments. Signup and view all the answers

Study Notes

Personal Finance Terms

Annual Fee: Yearly charge by credit card companies for the convenience of card usage.
Annual Percentage Rate (APR): Represents the annual cost of borrowing, incorporating interest rates and other fees.
Credit Card: A bank-issued card enabling users to finance purchases and manage payments.
Credit Report: Comprehensive document detailing an individual's credit history, including debts and payment patterns.
Credit Score: Numeric representation of a person’s creditworthiness, derived from their credit report using a standardized formula.

Debt Management Strategies

Debt Snowball: A strategy for debt repayment that prioritizes the smallest debts first while making minimum payments on others.
Borrower: A term referring to an individual or entity that receives funds from a lender and is obliged to repay it.

Financial Concepts and Figures

Depreciation: Represents the reduction in value of an asset over time.
Introductory Rate: The initial interest rate on a loan that typically increases after a promotional period.
Loan Term: Duration during which a loan agreement is effective, requiring repayment or renegotiation by the end.

Deductions and Spending

Tax Deduction: Expense, like charitable donations, that reduces taxable income.
Personal Debt: Total amount of money that an individual owes to creditors.

Spending Patterns and Statistics

Individuals without a high school diploma spend around $173 annually on lottery tickets.
College graduates spend an average of $49 on lottery tickets.
A car can lose approximately 70% of its value in the first four years.
Cash users tend to spend 12-18% less compared to credit card users due to the psychological impact of handling cash.

Credit and Debt Management Steps

Five steps to become debt-free include: stop additional borrowing, save funds, sell assets, seek additional income, and apply the debt snowball method.
FICO stands for Fair Isaac Corporation, and the FICO score reflects an individual’s debt management behaviors.

Credit Score Components

Five critical components of a FICO score include: debt history, new debt, levels of debt, duration of debt, and types of debt.

Identity Theft and Prevention

Identity theft is currently the fastest-growing crime in North America.
Key credit bureaus include Experian, TransUnion, and Equifax.
In case of identity fraud, essential actions include obtaining a credit report, alerting credit bureaus, canceling affected cards, filing a police report, and disputing suspicious charges.

Misconceptions and Best Practices

Establishing credit is not a prerequisite for homebuying.
Victims of identity theft are held responsible for the entire debt incurred.
Paying cash does not impact FICO scores, while borrowing money from family for debt relief is often ill-advised.

Loan Details and Associated Risks

An adjustable-rate mortgage (ARM) poses risks due to potential increases in interest rates.
Financing a car is discouraged due to rapid depreciation of its value.
Taking on debt can enslave an individual financially and hinder investment opportunities.

Personal Information Security

Strategies for protecting personal information include using shredders, checking credit reports yearly, securing debit cards with photo ID, creating robust passwords, and considering identity theft protection services.

Additional Financial Concepts

The average car loan spans approximately 65 months.
Radio-Frequency Identification (RFID) is utilized for tracking objects through electromagnetic data transfer.
Foreclosure is the legal process by which a lender sells property from a borrower failing to meet mortgage payment requirements.
Repossession occurs when a lender retrieves assets, such as a car, due to non-payment.
Bankruptcy is a legal avenue for managing debt when one cannot repay what is owed.
Garnishment involves a court order for lenders to withdraw owed money directly from a borrower’s paycheck.
Delinquency refers to any situation where a borrower fails to meet payment obligations.

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Description

Test your knowledge of Chapter 4 in Personal Finance with these flashcards. Learn key terms such as Annual Fee, APR, and Credit Card to enhance your financial literacy. Perfect for students aiming to master their understanding of financial concepts.