.png)
According to new findings highlighted by Money.com.au and Realestate.com.au, Australians are unknowingly sacrificing significant borrowing power simply because of the way credit cards are treated during home loan assessments. In many cases, a single card can reduce your borrowing power by more than $50,000, even if you’re not carrying any debt on it.
At YFH, our mission is to help Australians understand the hidden mechanics behind lending so they can make smarter, more confident decisions. Let’s break down why credit cards are having such a massive impact – and how we can help you fix it before applying for a home loan.
Credit cards are eating into your borrowing power at record levels
Aussies are using credit cards more frequently than ever, especially for discretionary lifestyle spending. The research shows:
Average monthly lifestyle spending on credit cards:
Across all age groups, that works out to roughly $14,000 - $17,000 a year or non-essential spending – equivalent to about a third of a deposit for the average home.
Why your credit card limit matters more than your balance
A big part of your credit score is determined by how much of your total credit you use – meaning the balances and limits on all of your cards are taken into account to calculate your score. Having a good credit score can affect your ability to get financing on your home.
Lenders generally prefer that you use less than 30% of your credit limit. The lower your balance sits compared to your limit, the healthier your credit profile looks. Ideally, you’d pay off your card in full every month; but if that’s not possible, paying more than the minimum consistently still strengthens your position.
But here’s the part most homebuyers get wrong: Lenders don’t just look at what you owe today. They look at what you could owe tomorrow.
Even if your credit card balance is $0, lenders treat your entire credit limit as a potential liability. They assume that if you wanted to, you could max out your card the moment your mortgage is approved.
To calculate that risk, banks apply a standard formula:
Most lenders count 3.8% of your total credit limit as a monthly repayment obligation.
Which means:
Even one or two “unused” cards can cut your borrowing power far more than most buyers realise.
This is why so many clients are shocked when a lender or broker runs the numbers – the final borrowing capacity often comes back tens of thousands of dollars lower than expected.
A quick example:
If, based on your financial situation (income, expenses, assets and liabilities), your borrowing power should be around $800,000 excluding your credit card.
In this same situation, if you have 2 credit cards with a combined credit limit of $10,000, then you could expect your total borrowing power to slash by around $50,000 - $60,000 (down to $740,000 - $750,000).
So, how much does a credit card impact your mortgage?
There’s no rule book for how much a credit card impacts your mortgage.
It may have a significant impact, or it may just be a minor consideration – every situation is unique.
But if we were to narrow it down, there are two main things that can determine how much a credit card impacts your mortgage – the size of your credit card limit and the way you use it.
The size of your credit card limit
Your credit card limit will reduce your maximum borrowing power. This is because lenders plan for the worst case scenario – that's if you max out the full credit limit and need to repay it over a period of 3 years whilst also making your home loan repayments. Because of this, a common rule of thumb, you can assume your total borrowing power for a new mortgage decreases by 5-6 times your total credit limits.
The way you use your credit card
Your credit card behaviour plays a major role in whether you’re seen as a reliable borrower. Red flags for lenders include:
These behaviours signal that you may struggle to manage debt – which can harm your credit score and your chances of home loan approval.
How can you increase your chances of getting a better loan?
The bottom line: yes, a credit card affects your mortgage application. But exactly how much depends.
If you take anything away from this, we’d like it to be this: lenders will take into account your credit card before approving your home loan application. But, how much weight they place on it depends on your credit card limit and the way you use it.
This is good news because you typically have control over these factors.
If you’d like to know how your credit card behaviour will affect your mortgage application (and ways to increase your chance of getting approved) a great first step is to speak to a mortgage broker.
At YFH, we evaluate your full financial profile to uncover how lenders are likely to assess your application – including any blind spots you may not realise are holding you back. Then, we provide tailored recommendations to help increase your borrowing power, reduce financial pressure, and help you move tơard homeownership with clarity and confidence.
Book a chat with us and get started today.
Your Finance Hub
