jamal has a credit card with a $5000 limit. the account statement shows his balance at the end of each month…

jamal has a credit card with a $5000 limit. the account statement shows his balance at the end of each month since getting the credit card.\njamal’s credit card statement\nmonth 1: $1,000\nmonth 2: $1,400\nmonth 3: $1,900\ncalculate jamal’s credit utilization ratio for each month and analyze the trend. how might this impact his fico score and suggest an action he could take to improve his credit before applying for a loan.

jamal has a credit card with a $5000 limit. the account statement shows his balance at the end of each month since getting the credit card.\njamal’s credit card statement\nmonth 1: $1,000\nmonth 2: $1,400\nmonth 3: $1,900\ncalculate jamal’s credit utilization ratio for each month and analyze the trend. how might this impact his fico score and suggest an action he could take to improve his credit before applying for a loan.

Answer

Explanation:

Step1: Recall Credit Utilization Formula

Credit Utilization Ratio (CUR) is calculated as (\text{CUR} = \frac{\text{Credit Card Balance}}{\text{Credit Limit}} \times 100%). The credit limit is $3000.

Step2: Calculate Month 1 CUR

For Month 1, balance is $1000.
(\text{CUR}_1 = \frac{1000}{3000} \times 100% \approx 33.33%)

Step3: Calculate Month 2 CUR

For Month 2, balance is $1400.
(\text{CUR}_2 = \frac{1400}{3000} \times 100% \approx 46.67%)

Step4: Calculate Month 3 CUR

For Month 3, balance is $1900.
(\text{CUR}_3 = \frac{1900}{3000} \times 100% \approx 63.33%)

Step5: Analyze Trend and Impact

  • Trend: CUR increases from Month 1 to 3 (33.33% → 46.67% → 63.33%).
  • FICO Impact: High credit utilization (above 30% is often advised to be avoided) negatively impacts FICO scores, as utilization is a significant factor (≈30% of FICO score). Rising utilization will lower the score, harming loan approval chances.
  • Action Suggestion: Janal should pay down balances to keep utilization below 30% (e.g., pay more than minimum, reduce spending, or increase credit limit).

Answer:

  • Month 1 CUR: ≈ 33.33%, Month 2: ≈ 46.67%, Month 3: ≈ 63.33%.
  • Trend: Increasing utilization.
  • Impact: Lower FICO score, worse loan approval odds.
  • Action: Pay down balances (e.g., pay extra, cut spending) to reduce utilization.