Question

question
given that james has a total debt of $2,440 and a total credit limit of $6,000, and that shelly has a total debt of $1,800 and
a total credit limit of $5,000, who is more likely to have a higher credit score? justify your choice.
select the correct answer below:
shelly has a higher credit score because she has a higher debt - to - credit ratio.
james has a higher credit score because he has a higher debt - to - credit ratio.
shelly has a higher credit score because she has a lower debt - to - credit ratio.
james has a higher credit score because he has a lower debt - to - credit ratio.

Explanation:

Step1: Calculate James' debt - to - credit ratio

The debt - to - credit ratio formula is \(\text{Debt - to - Credit Ratio}=\frac{\text{Total Debt}}{\text{Total Credit Limit}}\).
For James, \(\text{Debt - to - Credit Ratio}=\frac{2440}{6000}\approx0.407\)

Step2: Calculate Shelly's debt - to - credit ratio

For Shelly, \(\text{Debt - to - Credit Ratio}=\frac{1800}{5000} = 0.36\)

Step3: Compare the ratios and relate to credit score

A lower debt - to - credit ratio is better for a credit score. Since \(0.36<0.407\) (Shelly's ratio < James' ratio)

Answer:

Shelly has a higher credit score because she has a lower debt - to - credit ratio.