Credit Card limits - Limit your borrowing power

Sunshine Coast Daily 13th April 2013.

CREDIT card holders routinely receive applications and offers to increase the limit on their cards, however, few realise the impact an increased credit limit has on a home loan application.

Loan Market mortgage broker Carol King said that in the past year she had seen many home loan applications adversely affected by clients who have accepted a seemingly innocent credit card limit increase.

"Automatic credit card increases are common these days but these increases can have a big impact on your borrowing power, especially when you don't use the limit you have been granted," Mrs King said.

A limit of $10,000 on a credit card can reduce your borrowing limit by up to $30,000 and with a reduced borrowing power many buyers can find it more difficult to purchase their preferred property, even with a healthy income and significant savings.

"When you're going through a home loan application, lenders are going to look closely at your savings and income, but they also place a huge emphasis on the amount of credit you have available, which could potentially affect your ability to make future repayments," she said.

Mrs King offered the following tips for those considering increasing their credit card limit and potentially purchasing a property:

Reduce your credit card limit to the maximum limit you regularly use.

If you ever need to increase the limit for an "emergency" a quick call to most lenders will increase your limit as long as you have good conduct on that card.

If you can, limit your credit cards to one or two at most. Having several credit cards will impact your credit file and will also not score well with lenders. Become an additional card holder with your partner if you can as this will save you on fees but also the credit limit will only impact the borrowing capacity of the primary holder and not the secondary.