Question

part b: scenarios
read each situation and decide if it helps or hurts your credit score.

1. sarah pays her credit card bill 3 days late.
2. marcus keeps his balance at $150 on a $1,000 limit card.

Explanation:

Scenario 4: Sarah pays her credit card bill 3 days late.

Payment history is a major factor in credit scores. Paying a credit card bill late, even by a few days, can be reported to credit bureaus (depending on the card issuer's policy, though some may have a grace period or only report late payments after a certain number of days past due, like 30 days). However, if the issuer reports it, a late payment can lower the credit score as it indicates a potential risk of not paying on time. If it's within a short grace period and not reported, it might not hurt, but generally, late payments (especially if reported) negatively impact credit scores.

Credit utilization (the ratio of credit used to credit limit) is important for credit scores. The formula for credit utilization is $\frac{\text{Balance}}{\text{Credit Limit}} \times 100\%$. For Marcus, that's $\frac{150}{1000} \times 100\% = 15\%$. Lower credit utilization (below 30% is recommended, and lower is better) is good for credit scores as it shows responsible credit use, so this situation helps his credit score.

Step 1: Recall credit utilization formula

The formula for credit utilization ratio is $ \text{Utilization Ratio} = \frac{\text{Balance}}{\text{Credit Limit}} \times 100\% $

Step 2: Plug in Marcus's values

Balance = $150, Credit Limit = $1000. So, $ \text{Utilization Ratio} = \frac{150}{1000} \times 100\% $

Step 3: Calculate the ratio

$ \frac{150}{1000} = 0.15 $, then $ 0.15 \times 100\% = 15\% $

Step 4: Evaluate the impact

Since 15% is below the recommended 30% credit utilization, maintaining a low utilization like this shows responsible credit management, which helps the credit score.

Answer:

Hurts credit score (assuming the late payment is reported; if there's a short grace period and not reported, it might not, but typical understanding is late payments (even a few days) can be reported and harm the score).

Scenario 5: Marcus keeps his balance at $150 on a $1,000 limit card.