4. 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?
A. 16%
B. 46%
C. 36%
D. 56%
E. 26%

5. Jerry lost her credit card and instead of reporting it right away, she decides to continue looking for it for a couple of days. On the second day, she makes the call and reports the card lost/stolen to the credit card company. She then logs into the account activity page of her credit card and sees a recent $500 purchase that was made by someone else. How much of this $500 charge will Jerry have to pay?
A. $0
B. $300
C. $50
D. $250
E. $500

Card utilization rate refers to the portion of the credit card limit that has been used by the credit cardholder. When the credit card holder uses the funds, the used or withdrawal funds is known as the credit card balance.

Calculate the overall credit utilization:

The card balance refers to the amount utilized from the credit card. Therefore, the overall credit utilization can be calculated by dividing the overall credit card balance with the total credit card limit.

\begin{aligned}\text{Overall credit utilization}&=\frac{\text{Overall balance}}{\text{Total credit card limit}}\\&= \frac{\$410+\$510}{\$1,000+\$1,000}\\&=0.46\:or\:46\% \end{aligned}

Thus, overall credit utilization is 46%.

Determine Jerry’s liability:

Jerry is liable for the payment of the whole $500. The credit card is stolen, and the amount is withdrawn because of Jerry’s mistake. There was no mistake from the side of the bank. Therefore, Jerry has to pay the whole amount.

Thus, option (c) is correct. The total liability of Jerry is $500.

Learn More:

1. Learn more about the credit card balance

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Answer Details:

Grade: High School

Subject: Business Studies

Chapter: Money & Banking

Keywords: Suppose, credit, cards, the, first, has, a balance, $410, and, credit, limit, second, balance, $510, credit limit, credit utilization.