Is it Worth Cancelling Your Credit Cards? Feb 24, 2021 | Blog Even if you don’t have any loans or debts, having a credit card might be enough to significantly reduce your borrowing capacity. The reason why a credit card can be a hindrance to your ability to borrow money, is that lenders assess your credit card on the overall limit, not on how much you currently have in credit card debt. Even if you’ve never reached your credit card limit since you’ve had the credit card, many lenders will assess a credit card as if it is maxed out. For example, if you have a credit card with a limit of $10,000, the lender is likely to assess your debt based on around 3% of this total amount per month. This monthly amount, which in this case would be $300, is added to your ongoing expenses, with the result that your overall borrowing capacity is reduced. With a credit card limit of $10,000, that could mean a $75,000 reduction in borrowing capacity, which is significant and can quickly limit the number of potential properties a first home buyer has access to. Assessing Your Situation Lenders do not only focus on what your credit card limit will do to your borrowing capacity. They also take other factors into consideration! One of the most important elements of any debt, in the eyes of a lender, is your track record of making repayments. If you continually miss payments and increase your debt levels, that doesn’t bode well in the eyes of a bank. Similarly, if you are living off your credit card, and are one pay cheque away from not just missing a payment, but also missing your rent, then that doesn’t make you look overly appealing in their eyes. It is important to understand that, with the implementation of Comprehensive Credit Reporting (CCR), lenders have incredibly detailed data on your spending habits, drilling down to how early or late you pay off your debts, or other bills. Credit Cards Are Not All Bad Now that we understand the impact credit cards have, it’s also important to note, that having a credit card is not necessarily a bad thing in the eyes of a bank. As mentioned, how you manage your credit cards is far more important than the fact that you have them. Lenders like to see that you are responsible with money. In fact, if you have a credit card and manage the credit very well, you will be looked upon far more favourably than someone who doesn’t have a credit card at all. Whether or not you get rid of your credit cards to help you get a home loan really comes down to a few key factors. If you have a huge credit card limit that you simply don’t need, it might not be worth it. You could consider reducing the limit to help your application. If you have a poor track record of making payments or living off your credit card, it might be worth improving your money management skills. If your application is very tight, then your mortgage broker Sydney will be the person best suited to help you decide whether you need to get rid of your credit card. If you’re reliant on your credit cards, take a step back and assess your personal financial and living situation and get that in order before you start the home loan application process. Why YFA? Our motto has always been “Honesty” and Over 20 years, we have always believed that understanding the customer requirement should be the first priority. We are very passionate about helping individuals and families to identify financial goals with the correct focus on their plans for the long run through us home loan consultant. We feel proud and blessed to win awards because of successfully assisting people to achieve financial success. What makes us stand out from others is the utmost trust from our clients who have trusted us. We have always aim to provide updated yet useful blogs by adhering to traditional values of transparency and integrity, while continuing to bring steady and consistent performance over the long term. Our best home loan broker is always there to assist you. We love going beyond the bolts of financial crisis in an easier manner just to help people believe that money never blocks their happiness. Our mortage experts try to the best of our abilities to be a sane, and trusted entity in the sector of Wealth Management via providing services in Finance & Insurance. Credit Rep Number – 418883 | ABN – 8119516623 Submit a Comment Cancel replyYour email address will not be published. Required fields are marked *Comment Name * Email * Website Save my name, email, and website in this browser for the next time I comment.