You may well have a clean credit file but did you know that simply owning a credit card can have a massive impact on your borrowing power?

That’s because most credit departments assess your debt based on your credit card limit not your balance. What can you do to borrow more?

Why banks focus on your credit limit

Even if you’ve never come close to reaching your credit limit, most banks will generally assess your limit at 2-3% per month.

So for a $10,000 credit limit, the bank will consider your minimum monthly repayment to be $300. When lenders assess your borrowing capacity, they compare your net monthly income with your net monthly expenses. In this example, $300 would be added to your monthly expenses, reducing your overall borrowing power accordingly. Use our calculator to find out your borrowing capacity.

Have you been making your repayments on time?

In most cases, having a single over limit or late payment will mean the bank will decline your home loan application.

Under new credit reporting legislation, banks can see if you were more than 5 days late any time in the last 2 years so the chance of getting declined has increased.

However, one of our mortgage brokers can help you get approved with a specialist lender that takes an understanding approach. Please call us on 1300 889 743 or make an online enquiry today.

What if you have multiple credit cards?

Lenders don’t like to see that you’re living off credits, and generally speaking, having more than one credit card is another red flag that suggests you’re living beyond your means.

It is still possible to get a home loan even if you have some credit problems. You can find out more on our bad credit home loans page.

Are you a good credit card holder?

To be clear, having a credit card is not necessarily a bad thing. In fact, if you have one credit card, pay it down regularly and never use the full limit then you will generally be looked upon more favourably than someone who doesn’t have a credit card at all (assuming you meet all other eligibility requirements).

That’s because lenders can see a clear history of payments made on time and in full, a good indication that you are likely to properly manage your mortgage repayments as well.

If your repayments are made on time, some banks and major lenders don’t even take your credit limit into consideration when assessing your borrowing power and instead use the largest balance on your card from the last three months.

Let a mortgage broker assess your situation

Before doing anything with your credit card, speak to your mortgage broker. We may be able to find a lender that doesn’t require you to change your credit terms at all!

In most cases, credit card holders will need to provide their broker with three months credit card statements as evidence of on time payments. This is helpful when the broker presents your case to the lender.

If no statements are issued by your credit provider, you can simply download and print off the most recent statement and a transaction history from your internet banking account.

How to reduce your limit

If the broker advises you to reduce your limit, all you need to do is call the bank and ask them do so.

When deciding on your new credit limit, consider this: if your monthly spend is $1,000 do you really need a $4,000 credit limit? Reduce your limit to the bare minimum and provide evidence of the reduction to your broker. Without proof the bank will use the old higher limit in their assessment.

The evidence of the reduction should be in the form of a letter from the bank confirming that your credit limit has been reduced. The broker may also ask for your most recent credit card statement which will show your new limit.

Pay down your debt

After you’ve reduced your limit, aim to reduce your debt by making extra repayments and by focussing on paying off one card at a time. Having one credit card to your name is ideal.

Note that there isn’t a limit to how much a lender will consolidate credit card debt. It really depends on the lender’s policies.

If you think your credit card debt may affect your borrowing capacity, speak to Home Loan Experts first.

Our mortgage brokers are credit experts who know how to get your loan approved and can help you avoid damaging your credit file with a loan application that is likely to be declined.

Please call us on 1300 889 743 or enquire online today.

  • Martha Castle

    Hello there,

    I initially had 3 credit cards with a $10k limit each, of which I only used 2 on a regular basis and that also no more than $4k. My first loan application was a nightmare because of this and one of your brokers suggested me to reduce my limits or cancel my cards and read this page for more info. The page is very informative and I totally see why I was rejected before. Do you guys also have a page about children and how banks assess customers with kids…?

  • Hey Martha,

    Yes, we do have a page on dependents and how they are perceived by the banks, which can have an impact on your borrowing power. We’re glad to help and hope to see you through to settlement and beyond :)
    Here’s the link to the page:

  • Martha Castle

    Thanks. Me too :)

  • floory

    I’ve reduced my credit card limit so the bank should assess me better now, isn’t it?

  • Hi floory, yes but you’ll need to provide evidence of the reduction in the form of a letter from the bank confirming that your credit limit has been reduced. Without proof, the bank will use the old higher limit in their assessment. You may also be asked to provide your most recent credit card statement which will show your new limit.

  • Johansen

    Due to a bit of mismanagement on my part, I seem to be over committed at the moment and in a lot of debt. How much can this reduce my borrowing power? I am actually planning to buy a house soon and this situation should clear up in a few months I think.

  • If you have too many debts for your income or your total assets are less than your total liabilities then the major banks may assess you as being insolvent or beyond help. This means that it’s likely that you’ll get declined for a home loan. It would be best if you can wait until you can get the situation under control before you apply.

  • summerfield

    Any other ways to improve borrowing power aside from this and only applying with a clean credit?

  • Hi summerfield,
    Please check out the “Improve my borrowing power” page to learn more about how you can improve your borrowing power aside from those you’ve mentioned. Here’s the link to the page and please feel free to comment if there’s anything you’d like to get clarified:

  • Boartight

    Can you tell me about which lenders currently have the most competitive 10 year fixed rates and offers?

  • Hi, finding the cheapest fixed rate is not as simple as a quick Google search. Most banks set their fixed mortgage rates on a weekly or fortnightly basis so the answer to this question is always changing. So please call us on 1300 889 743 or enquire online and one of our mortgage brokers will contact you to discuss your options: