Does My Credit Card Limit Affect How Much I Can Borrow If I Owe Nothing?

Does My Credit Card Limit Affect How Much I Can Borrow If I Owe Nothing?

The Quick & Dirty: Yes. Even if you pay your credit card off every month and owe $0 today, the limit on the card can still affect how much you can borrow for a home loan.

Which feels slightly ridiculous when you’re sitting there thinking: “But I don’t owe anything on it?”

Here’s why.

Why does my credit card matter if the balance is $0?

Say you've got a credit card with a $15,000 limit.

You use it for everyday spending, collect your points and pay the whole balance off every month.

As far as you're concerned, you don't have $15,000 of credit card debt.

And you're right, technically you don't.

But you do have access to $15,000 of credit.

When a lender works out how much you can borrow, it looks at your existing debts and financial commitments. APRA's residential mortgage lending guidance specifically includes credit cards when lenders assess a borrower's existing debt commitments.

You can see this in practice too. Broker Codex's current borrowing-power calculator asks for your total credit card limit, including store cards not simply today's outstanding balance.

Can a high credit card limit reduce my borrowing capacity?

Potentially, yes.

This is why I'll sometimes ask a client:

“Do you need a $20,000 limit?” Not because credit cards are bad. Not because I want you to stop collecting Qantas points. It's because if you're trying to maximise your borrowing capacity and you've got a large amount of unused credit sitting there, I want to know whether it's making a meaningful difference to your numbers.

This is particularly worth looking at if you're already close to the maximum amount you need to borrow.

Please don't read this article and immediately cancel the card you've had for ten years.

First, work out whether it's even a problem.

If you can already comfortably borrow what you need, there may be no reason to change it.

If you're falling short, however, we can model what happens if you reduce the limit or close the card completely.

CommBank, for example, specifically lists reviewing and potentially reducing your maximum credit-card limit as one way borrowing power may be increased.

What if I want to keep my credit card for the points?

Honestly, fair.

You may not have to get rid of it.

Sometimes reducing a $20,000 limit to $5,000 could be enough. Sometimes the card isn't what's limiting your borrowing capacity at all.

That's why I'd rather run the numbers before you change anything.

The goal isn't to strip every useful thing out of your financial life just so we can squeeze another dollar out of the bank.

It's to understand what's affecting your borrowing capacity and decide what — if anything — is worth changing.

Do all banks calculate borrowing capacity the same way?

No.

APRA provides prudential guidance around residential mortgage lending, but individual lenders still have their own credit policies and assessment methods.

That's one reason you can give the same income, expenses and debts to two different lenders and end up with different borrowing-capacity figures.

In summary:

If you've got a credit card with a $10,000, $15,000 or $20,000 limit and you pay it off every month, don't assume the bank will ignore it just because the balance is $0.

But don't automatically cancel it either.

If you're thinking about buying your first home, we can look at your credit-card limits alongside your income, expenses and other debts and work out whether they're genuinely affecting how much you can borrow.

Book a chat with Eshanee from April Six by clicking here.

Any information or advice contained on the April Six Pty Ltd website is general in nature only and has been prepared without considering your individual personal objectives, financial situation or requirements. Before acting or relying on this information, you must consider the appropriateness of this information with regard to your individual circumstances and objectives.

April Six Pty Ltd is a Credit Representative of Astute Financial Management Pty Ltd | Australian Credit Licence 364253

© April Six Pty Ltd | ACN: 667183735 | Credit Representative Number 554762

Eshanee Collins is the founder of April Six, a Sydney-based mortgage broker for first home buyers and first-time property investors across Australia.

📱 0488 471 888 | @eshanee_thebroker | aprilsix.com.au

Sources APRA — Residential Mortgage Lending guidance

Broker Codex — Borrowing Power Calculator