How Your Credit Card Limit Could Be Holding Back Your Home Loan in 2025
Think an Unused Credit Card Won’t Affect Your Mortgage? Think Again
It might seem like a smart move: pay off your credit cards before applying for a home loan, but keep them open for emergencies or to furnish your new place. But here’s the catch—even unused credit cards can reduce your borrowing power.
At CBM Mortgages, we regularly help clients uncover how their credit profile affects their loan eligibility. And one of the most overlooked factors? Credit card limits.
Why Lenders Care About Your Credit Card Limit—Not Just Your Balance
When assessing your home loan application, lenders don’t just look at how much you owe—they look at how much you could owe. That means your total credit limit is factored into your liabilities, even if your card has a zero balance.
Here’s how it works:
Most lenders apply a buffer of 3% of your total credit card limit to your monthly expenses. So, if you have a $10,000 limit—even with no balance—they’ll assume a $300 monthly liability.
That $300 could:
- Reduce your borrowing capacity by $50,000 or more
- Add years to your loan term
- Increase your total interest paid by tens of thousands of dollars
Real-World Example: The Cost of a High Credit Limit
Let’s say you’re applying for a $500,000 loan over 30 years at 5.5% interest. If you could redirect that $300/month (from your credit card liability) into your mortgage repayments, you could:
- Pay off your loan 5 years faster
- Save approximately $100,000 in interest
Alternatively, you might qualify to borrow an extra $50,000—which could be the difference between settling for a property or securing your dream home.
What Should You Do Before Applying for a Home Loan?
1. Lower Your Credit Limit
If you don’t want to cancel your card, consider reducing your limit to the minimum you actually need. This can significantly improve your serviceability.
2. Pay Off Outstanding Balances
Outstanding credit card debt not only affects your credit score—it also increases your monthly liabilities.
3. Cancel Unused Cards
If you have multiple cards you rarely use, it may be worth closing them altogether. This can simplify your finances and boost your borrowing power.
4. Make Timely Payments
If you’re still paying off your card, ensure you make on-time repayments to protect your credit history.
Let’s Maximise Your Borrowing Power
At CBM Mortgages, we help you:
- Understand how lenders assess your credit profile
- Optimise your financial position before applying
- Compare loan options from over 40 lenders
- Avoid costly delays—like in this case study on settlement penalties
Call us today on 02 8068 0534 or get in touch online to get started.
Further Reading:
- How to boost your borrowing capacity
- Credit Limits in Australia 2025 – Cockatoo
- Read our how do interest only loans work blog
- First Home Buyer Grants – Revenue NSW
Disclaimer:
The information provided in this article is for general guidance only and does not constitute financial or legal advice. It does not consider your personal circumstances. Before making any financial decisions, seek professional advice from a licensed mortgage broker or financial consultant. This content is protected by copyright laws and may not be modified, reproduced, or republished without prior written consent.
Written by Craig McDonald 15/06/2025
