Question

which of the following correctly explains the difference between the debt-to-income (dti) ratio and credit utilization?
a dti and credit utilization have no impact on loan approval decisions.

b dti measures the percentage of your income used to pay debts, while credit utilization measures the percentage of your credit limit currently being used.

c both dti and credit utilization are factors in your credit score calculation.

d credit utilization is based on your income, while dti is based on your credit card limits.

Explanation:

• Option A is incorrect because DTI and credit utilization do impact loan approval decisions.
• Option B correctly explains the difference: DTI is the percentage of income used for debt payments, and credit utilization is the percentage of credit limit in use.
• Option C is incorrect as the question asks for the difference, and this option states a similarity (both being credit score factors) rather than a difference.
• Option D has the definitions reversed; credit utilization is based on credit limits, not income, and DTI is based on income and debt payments.

Answer:

B. DTI measures the percentage of your income used to pay debts, while credit utilization measures the percentage of your credit limit currently being used.