How Can Credit-Card Limits Affect Borrowing Capacity?
Even if you pay your balance in full every month, your credit card limit can significantly reduce the amount you can borrow.
When assessing your home loan application, lenders look at your total credit card limit, not just your current balance. A high credit limit reduces your borrowing capacity because the lender must assume you could potentially max out the card and have to make repayments on that full amount.
How credit limits are assessed
Lenders typically calculate a hypothetical monthly repayment based on your total approved credit limit—often around 3% to 3.8% of the limit per month. They deduct this assumed repayment from your available monthly income, leaving less surplus income to service a home loan.
Illustrative example
Illustrative example: You have a credit card with a $15,000 limit, but you always keep the balance at zero. A lender might still deduct approximately $570 per month from your available income to account for that card. This $570 reduction in monthly servicing capacity could potentially reduce your maximum home loan borrowing capacity by $60,000 or more.
What may change the outcome
Different lenders apply slightly different assessment rates to credit cards, but all are required by regulation to assess the limit rather than the balance. If you close the card or reduce the limit before applying, your borrowing capacity will generally increase.
Common misunderstandings
The most common misunderstanding is: "I pay it off in full every month, so it shouldn't affect my application." While paying your card in full is excellent for your credit score, the lender is legally required to assess the potential risk of the available credit limit being fully drawn.
When a personal review may help
If you are struggling to reach the borrowing capacity you need for a specific property, a broker can advise whether reducing your credit card limits or closing unused accounts will provide the necessary boost to your servicing.
Next step
Try adjusting the expenses and commitments in our Borrowing Capacity Calculator to see how removing a credit card might change your indicative estimate.
This article provides general information only and does not take into account your objectives, financial situation or needs. It does not constitute personal credit, financial, tax or legal advice. Lending outcomes depend on individual circumstances, lender policy and assessment.
Have questions about your situation?
Every home loan scenario is unique. Speak directly with Cameron or Matthew to get clear answers.