Chapter 13 - Basics of Borrowing

Bankruptcy is a legal status or procedure for an individual or other entity that cannot repay its debts.

• True

• False

Answer explanation

Bankruptcy is indeed a legal status for individuals or entities unable to repay debts, confirming that the statement is true.

Credit scores are generated by one national credit bureau.

• True

• False

Answer explanation

Credit scores are generated by multiple credit bureaus, not just one. The three major bureaus in the U.S. are Experian, TransUnion, and Equifax, which all contribute to the scoring process.

FICO is an acronym for the Fair Isaac Corporation.

• True

• False

Answer explanation

True. FICO stands for Fair Isaac Corporation, which is a data analytics company known for its credit scoring models.

Assets such as a car or property pledged as security for repayment of a loan is called debt.

• True

• False

Answer explanation

The statement is false because assets like a car or property pledged as security for a loan are called collateral, not debt. Debt refers to the amount owed, while collateral is the asset securing the loan.

Part 1: True or False? Read the statements below and select T if the statement is true or F if the statement is false. 5. About 70% of all car purchases in the United States involve an auto loan.

• True

• False

Answer explanation

The statement is true; approximately 70% of car purchases in the U.S. are financed through auto loans, indicating that most buyers rely on loans to make their purchases.

The maximum amount that a person is permitted to owe, determined by how good their credit rating is, is called

• Credit

• Credit limit

• Credit bureau

• Closed-end credit

Answer explanation

The maximum amount a person can owe based on their credit rating is known as the 'credit limit.' This term specifically refers to the cap set by lenders on borrowing, distinguishing it from other credit-related terms.

What is considered to be a good credit score?

• 550

• 830

• 300

• 620

Answer explanation

A good credit score typically ranges from 700 to 850. An 830 score is excellent, indicating strong creditworthiness, while scores like 550 and 620 are considered poor to fair. Thus, 830 is the best choice.

What is a legal action that a creditor can take to collect what is owed to them by withholding a certain amount of your wages to satisfy the debt?

• Wage garnishment

• Finance charge

• Over limit fee

• Promissory note

Answer explanation

Wage garnishment is a legal action where a creditor can collect debts by withholding a portion of your wages directly from your paycheck. This process allows creditors to satisfy the owed amount through your earnings.

What is in your credit report?

• Bill payment history

• If you have ever been sued

• Where you live

• All of the above

Answer explanation

Your credit report includes your bill payment history, any lawsuits against you, and your address. Therefore, the correct answer is 'All of the above' as it encompasses all these elements.

What is a series of loan payments that include the principal plus the interest that makes up each payment?

• Annual fee

• Average daily balance

• Amortization schedule

• Open-end credit

Answer explanation

An amortization schedule outlines a series of loan payments that include both principal and interest. It details how each payment is applied over the loan term, making it the correct choice for this question.