What Do You Know About Credit?

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What Do You Know About Credit?

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1. According to Robert D. Manning, in his book Credit Card Nation, at the turn of the millennium, there were ____ credit cards issued in the United States.

A. 158 million
B. 1.5 billion
C. 58 million
D. 10 million

Answer : B Manning reports that, "Today, over 158 million cardholders have about 650 million retail credit cards, 506 million bank cards, 185 million phone cards, 107 gasoline cards, and 66 million miscellaneous (airline, car rental) cards" (pp. 6, 12).

2. Robert D. Manning also reports that in 1997 the average graduate student possessed ___ credit cards.

A. 7
B. 4
C. 2
D. 10

Answer: A Manning states, "The average number of credit cards in 1997 [for graduate students] was seven with an average credit card balance of $5,800…" (p. 169).

3. The average college student graduates today with nearly

A. $ 500 in credit card debt
B. $1,000 in credit card debt
C. $3,000 in credit card debt
D. no credit card debt

Answer: C According to John C. Ninfo II, founder of Credit Abuse Resistance Education (CARE), the average student graduates today with $3,000 in credit card debt, and many have double or triple that amount. (For more information, see Eight Rules for Debt-Free Living (Part I-II) by John C. Ninfo II at YoungMoney.com.)

4. Credit Abuse Resistance Education (CARE) recommends that one should

A. use cash for everyday purchases costing $20 and under
B. use cash for food and drink
C. both of the above

Answer: C CARE founder Ninfo says, "You will find that you make very different spending decisions when you use cash, a check or your debit card, especially when you make a ledger entry every time you use a check or your debit card so that you can see your account balance reducing."

5. The credit card industry gets ____ of its revenues from fees, which can be as high as $39 (annual fees, over limit fees, late payment fees, balance transfer fees, fees for paying online or by phone).

A. 10%
B. 25%
C. 40%
D. 35%

Answer: D According to Ninfo, "One day late in paying your $50 credit card balance and you could pay a $39.00 late fee." You would then owe $89 to the credit card company. Incidentally, that fee is more than six hours' worth of work at $6 per hour.

6. True or False: If you have multiple credit card accounts, it can be much more difficult to get a car loan, a home mortgage or a business loan.

A. True
B. False

Answer: A Ninfo says, "Even if those accounts have no balance due on them, and even if you have never used the card, the credit issuer knows that they still represent the availability of credit, and that you could max them out the next day and suddenly be deeply in debt."

7. True or False: Institutions of higher learning work together with credit card companies to promote the use of credit cards by students.

A. True
B. False

Answer: True "Credit card companies pay colleges and universities significant fees to allow them to offer students their services. These companies have learned that young people feel great loyalty to their first credit card, so it is simply good business to be the first to issue one to a young person." (See page 36 in Managing Your Finances.

8. About 40 percent of credit card users pay off their balances every month. Credit card companies refer to them as:

A. deadbeats
B. Preferred cardholders
C. Elite cardholders
D. VIP cardholders

Answer: A Ninfo's advice: Be a "deadbeat" and be proud of it. You won't regret it in the long run.

9. The best way to establish a good credit report is to

A. Get a job.
B. Get one credit card and use it once or twice a month.
C. Pay all your bills on time, preferably paying them off or paying more than the minimum required monthly payment.
D. All of the above.

Answer: D Ilyce R. Glink, in her bookReal U Guide to Bank Accounts & Credit Cards, recommends all of the above. She also encourages young people not to charge to their maximum credit limits unless they plan to pay it off in full at the end of the billing cycle. She suggests rather that you keep monthly charges or the balance to no more than half the limit (p. 54).