Fundamentals Flashcards
7 cards from real FICEP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Fundamentals flashcards as text
Which federal law requires creditors to disclose the Annual Percentage Rate (APR) to borrowers before loan consummation?
Answer: Truth in Lending Act
The Truth in Lending Act (TILA) mandates clear disclosure of credit terms including APR before a loan is finalized.
A client has a debt-to-income (DTI) ratio of 48%. Which statement best describes their financial situation?
Answer: Their DTI exceeds the typical 43% threshold lenders prefer
A DTI above 43% is generally considered high risk and can hinder mortgage and loan approvals.
What is the primary purpose of the Fair Credit Reporting Act (FCRA)?
Answer: To ensure accuracy and privacy of consumer credit information
The FCRA promotes accuracy, fairness, and privacy of consumer credit reports maintained by credit bureaus.
A client wants to build an emergency fund. What is the generally recommended minimum number of months of expenses to save?
Answer: 3 months
Financial counselors typically recommend saving at least 3 months of living expenses as a minimum emergency fund.
Which type of interest calculation results in the borrower paying the most total interest over the life of a loan?
Answer: Compound interest
Compound interest accrues on both principal and accumulated interest, resulting in higher total interest paid over time.
When counseling a client on the 50/30/20 budgeting rule, what percentage is allocated to savings and debt repayment?
Answer: 20%
The 50/30/20 rule allocates 20% of after-tax income to savings and debt repayment beyond minimum payments.
What is 'lifestyle inflation' in the context of personal finance counseling?
Answer: Spending more as income increases rather than saving the difference
Lifestyle inflation occurs when a person's spending rises in tandem with their income, preventing wealth accumulation.