Question

Emily and yasmin applied for the same credit card from the same bank. the bank checked both of their fico scores. emily had an excellent credit rating and received a card with a monthly interest rate of 1.08%, and yasmin had a poor credit rating and received a card with a monthly interest rate of 1.83%. if each of them had an average daily balance of $900 for a specific month and had to pay a finance charge, how much more would yasmin pay than emily?

Answer 1

Yasmin would pay an additional $6.75 in finance charges compared to Emily for the month, due to receiving a higher credit card interest rate based on a lower credit score.

Step-by-step explanation:

To calculate the finance charges for Emily and Yasmin, we first calculate the monthly interest for each by multiplying their respective interest rates by the average daily balance of $900. For Emily, the calculation is $900 × 0.0108 which equals $9.72. For Yasmin, the calculation is $900 × 0.0183 which equals $16.47. By subtracting Emily's finance charge from Yasmin's, we find that Yasmin would pay $16.47 - $9.72 = $6.75 more than Emily.

Credit card interest rates and their impact on the finance charges we pay are significant as they can vary greatly based on individual credit ratings. This example illustrates how a difference in credit score can affect the cost of borrowing, with higher interest rates leading to higher finance charges, thus impacting the overall financial burden on the cardholder.