Question

Suppose you have two credit cards. The first has a balance of $415 and a credit limit of $1,000. The second has a balance of $215 and a credit limit of $750. What is your overall credit utilization?

Answer 1

In overall utilization ratio it takes all the credit limits and all the credit cards. For example, all the credit limits are $1000 + $750 = $1750. and the cards is $415 + $215 = $630.

To calculate for the credit utilization ratio we divide by the total credit limits on all cards then we multiply by 100. For example,

The first and second credit cards is $415 + $215 = $630.

The first and second limits is $1000 + $750 = $1750.

To get the percentage of the overall utilization ratio we get,

$630 / $ 1750 × 100 = 36%.

Answer 2

The credit utilization amount is $630, and credit utilization rate is 36%.

Further Explanation:

Credit utilization rate:  Card utilization amount is the total amount of credit card balance. When the user of the credit card uses the funds from the credit card, then the funds used by the cardholder is known as credit card balance. Credit utilization is computed by dividing the credit card balance to the total credit limit.

${\text{Credit card utilization rate }} = {\text{ }}\dfrac{{{\text{Total credit card balance}}}}{{{\text{Total credit card limit}}}}$

Calculate the credit utilization rate:

$\begin{gathered} {\text{Credit card utilization rate }} = {\text{ }}\dfrac{{{\text{Total credit card balance}}}}{{{\text{Total credit card limit}}}} \\ = {\text{ }}\dfrac{{{\text{\ 630}}}}{{{\text{\ 1,750}}}} \\ = {\text{ 36\% }} \\ \end{gathered}$

Thus, the credit utilization amount is $630, and credit utilization rate is 36%.

Working note:

Calculate the total credit card balance:

$\begin{gathered} {\text{Total credit card balance }} = {\text{ }}\left( \begin{gathered} {\text{Credit card balance (Credit card 1) }} \\ + {\text{ Credit card balance (Credit card 2)}} \\ \end{gathered} \right) \\ = {\text{ \ 415 }} + {\text{\ 215}} \\ = {\text{ \ 630}} \\ \end{gathered}$

Calculate the total credit limit:

$\begin{gathered} {\text{Total credit card limit }} = {\text{ Credit card limit (1) }} + {\text{ Credit card limit (2)}} \\ = {\text{ \ 1,000 }} + {\text{ \ 750}} \\ = {\text{ \ 1,750}} \\ \end{gathered}$

Learn more:

1. Learn more about missing the monthly credit card payment

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2. Learn more about the minimum payment of credit card  

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3. Learn more about the features of credit card

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Answer details:  

Grade: Senior School

Subject: Business Studies

Chapter: Money and Banking

Keywords: Credit card, balance, credit limit, second, credit card utilization, credit utilization, credit utilization rate, supposes, two credit cards, credit card balance, first, second.