Question

debt ratio is calculated by ______.
(1 point)

○ adding all that you owe

○ subtracting all that you owe from your available credit limits

○ adding all that you owe and dividing by your total available credit limit

○ taking your total available credit and dividing by the total you owe

Explanation:

To determine how debt ratio is calculated, we recall the definition of debt ratio (also known as credit utilization ratio in some contexts). The debt ratio is calculated by taking the total amount owed (debt) and dividing it by the total available credit limit.

• The first option only adds what is owed, which is just the debt amount, not a ratio.
• The second option describes calculating available credit (credit limit - debt), not debt ratio.
• The third option matches the definition: sum of what is owed (debt) divided by total available credit limit.
• The fourth option inverts the ratio (credit divided by debt), which is not the debt ratio.

Answer:

C. adding all that you owe and dividing by your total available credit limit