What is the 5/20 rule?
Understanding the 5/20 Rule
The 5/20 rule is a guideline used by credit card issuers to determine whether a person qualifies for a new credit card, particularly a premium or rewards card. It helps lenders assess a borrower’s creditworthiness based on their existing credit profile.
How the 5/20 Rule Works
The rule states that to be eligible for certain credit cards, especially those offering lucrative rewards or benefits, an applicant must meet two conditions:
- The applicant must have at least 5 credit cards in total.
- Among these, at least 1 of the credit cards must have been opened within the last 20 months.
Purpose of the Rule
The main goal of the 5/20 rule is to prevent applicants with a limited credit history or those who have recently opened many accounts from obtaining high-risk, high-reward credit cards. It encourages responsible credit management and helps issuers mitigate risk.
Implications for Applicants
If you are considering applying for a new credit card with a bank that employs the 5/20 rule, you should review your credit card history. Having fewer than 5 cards or not meeting the recent account opening criteria may disqualify you from certain premium cards.