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Using the 28/36 ratio, to have $380 maximum allowable recurring debt, your annual income should be $16,290 (option A)
Lenders utilize many criteria to decide whether or not to approve credit applications. One of the most important factors is a person's credit score. Before considering credit approval, they normally require that a credit score fall inside a particular range. However, a credit score is not the only factor to consider.
Another essential component is the 28/36 ratio, which determines a consumer's financial situation.
As part of their screening program, each lender determines their own parameters for housing debt and total debt. This means that household expenses, such as rent or mortgage payments, cannot exceed 28% of monthly or annual income. Likewise, total debt payments must not exceed 36% of income.
In the given problem, maximum allowable recurring debt is $380. This is a 28% from the monthly income.
Let p = monthly income, hence:
28% x p = 380
p = 380/28% = 1,055.56
Therefore,
annual income = 12 x 1,357.2 ≈ $16,290 (option A)
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