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How Credit Card Limits & Balances Impact Borrowing Capacity

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Hi, Rick Nieuwenhoven here with a financial tip for you all.

Today what we want to talk about is credit cards and how they can affect your borrowing capacity. Sometimes people don’t realize that when you take out a credit card, what the banks do is they actually grab the credit card limit, not what you’ve actually extracted but the total limit of the credit card, and they will factor in that into the servicing calculator they use in relation to how much you can actually borrow.

What you need to be careful of is getting a credit card with too high a limit, which is then going to impact how much you can borrow going forward if you’re looking to buy a property or refinance a property.

Should I reduce my credit card limits before getting a home loan?

One tip I can give you is, let’s use a numerical example, if you have a credit card with $20,000 as the available capacity but you only use maybe $1,000 or $2,000 of that credit card, to increase your borrowing capacity with any lender I would recommend reducing that credit card down from $20,000 limit to a $5,000 limit. This will then mean that the banks will assess your credit card on the total debt capacity of $5,000 rather than $20,000, meaning that you can actually borrow more.

See Also: 75% Of Australian Property Investors Earn Less Than $80,000 Per Year

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