Remembering the 75% Rule at Christmas
With Christmas just two days away, we’ve already talked a lot about holiday shopping this holiday season. But now, as you rush out to get those last-minute gifts, remember that the 75 per cent rule still applies at Christmastime. So, just what is that rule?
The 75 per cent rule is an easy one to remember – you simply need to remember not to go over 75 per cent of your borrowing limit on any one credit card or line of credit. The reason? When you stretch credit - any credit – to its breaking point where you can no longer borrow another dollar, it gives lenders the impression that you really need the money, and that you’ll take as much as you can get. And if you really need money, the chances are you’re not going to be able to pay off the debt you’re racking up too easily. After all, you’ve already borrowed to the max. How could you possibly pay your bills?
“I have a book that I hand out to all my clients that shows them what the score is, shows them what the benefits are, tells them not to go over 75 per cent of their credit limits,” says Jeff Mayer of Dominion Lending Centres. “So what I would say is the best and biggest use of your knowledge would be credit…if you go 75 per cent above your credit limit you automatically become a risk.”
And it doesn’t matter when you intend to pay off that bill either. Remember, a statement showing that a consumer has maxed out their credit card doesn’t show intention, and can’t explain how or when the customer is going to pay off that balance. And if you’re applying for a loan while large balances still remain on a card, that can skew things even for the individual that has a very good credit score and would otherwise be considered a qualified candidate for credit. Lenders simply see it as too big of a risk; and it’s typically one they’re not interested in involving themselves in.
So go ahead and whip out that plastic if you must while doing your holiday shopping this year. Just remember not to stretch that credit past the 75 per cent mark, so you can keep yourself in good standing come the New Year.