[Pizza]

I strongly disagree with Cecil on Open credit

Despite having a zero balance on revolving credit like a credit card or a Line of Credit, it will play a major factor in debt service ratio. So going back to his example with someone with a $40k limit but having a zero balance compared to someone who is in debt $20k on a loan, the person with the $40k limit will have a harder time getting approved. The reason for this thinking is that the banks want to protect themselves from lending to someone who's unable to pay back. They will always consider the worst case scenario where if you decide to max out your credit facilities like your Credit cards and LoCs, they want to know if you're able to pay back their loans as well.

if you're wondering how Total Debt Service Ratio is calculated:

(payments of existing loans + min payment of potential maxed out revolving credit + rent/mortgage + other major payments)
/
household income before tax

at some banks, the most they`ll approve you on is 38-40%. Others may take on that risk on a higher ratio but will make you pay a higher interest rate

keep in mind that when getting approved for future loans, the institutions look at credit rating as well as your debt service ratio. They will also look at other things too like what other business you have with them, how long you've been a known customer with them. Having existing investments like RRSPs plays a minor factor too

This is all assuming that you're applying at a major Canadian bank and looking for a LoC, loan or mortgage. Some credit card companies arent too worried with all of the above factors