Even if you don’t use it, your credit card could scupper your chances of securing your dream home.
When assessing a home loan application, lenders allow for you to make minimum repayments on your existing credit card at 3.8% of the card's limit, not just the balance.
In fact, for every $10,000 added to your card limit, your ability to borrow money for your new home could be reduced by up to $55,000.
This can have a big impact on your borrowing power. So, before you apply for a loan, here are some options to consider:
Lower your limit
Before approaching lenders, adjust your credit card limit so it’s as low as possible. Your provider will give written notice of the reduction so make sure to keep a record of it.
Capitalise on extra repayments
Use ASIC's MoneySmart credit card calculator to find out how much you could save in interest by adjusting your repayments and paying your credit card off sooner.
Consolidate your credit
If you’re struggling to stay on top of credit card debt, one option is to merge these into a personal loan.
Having one regular payment and a longer time frame to repay may make things more manageable.
Cut the card
Always think twice before using the plastic. Getting rid of certain credit cards can help strengthen the chances of your home loan approval.
For some lenders, having more than one credit card can be a red flag. They are wary of borrowers who are living beyond their means on credit.
To learn more about how your credit card affects your chances of getting a home loan, talk to a Liberty Adviser today. You can also read more about borrowing power here.