Answer: The correct answer is choice B.
Explanation:
The debt ratio is the amount of credit that you are using of your credit limits, divided by the total credit limit. In this case, it is calculated by the following formula:
(990.34 + 2,365.78 + 5,897.65) / (3,500 + 4,600 + 8,000)
Debt ratio= 9,253.77 / 16,100
Debt ratio= 57.5%
If they pay off the lowest card and then close the account the calculations will be the following:
(2,365.78 + 5,897.65) / (4,600 + 8,000)=
8,263.43 / 12,600=
Debt ratio = 65.6%
By paying off the account and closing it the debt ratio increased. By closing the account you owe a higher percentage of your total balance then you did before closing the account.
