Question

Suppose you have two credit cards. The first has a balance of $410 and a credit limit of $1,000. The second has a balance of $510 and a credit limit of $1,000. What is your overall credit utilization? 36% 56% 46% 16% 26%

Answer 1

The question asked for overall credit utilization, so instead of considering individual credit cards for computation, I will use the credit limits of two cards as if it is just one credit card. That will give me a total limit of $2000.

In the same way, I will add the balances of each card for a total of $920 and get the percentage of remaining balance:

(sum of balances of two cards) ÷ (sum of credit limits of two cards)

($410 + $510) ÷ ($1000 + $1000) =  0.46 or 46%

Note:

But I have an argument because isn't it that credit utilization is the "percentage used" of the credit limit and for that, I have to subtract 46% from 100% which is 54% and that is not an included in the option

 

Answer 2

Your have a balance of $410 on one card and $510 on the other. Together (add) this is a balance of $920. Your total credit limit is $2000 (add the limits of each card).

That means you use $\frac{920}{2000}$. Percent means "out of 100" so we wish to write this fraction with 100 in the denominator (the bottom). We do this by dividing the top (numerator) and bottom (denominator) by the same number. Here we use 20. That gives us $\frac{920}{2000}= \frac{46}{100} =46%$