DO CREDIT CREDIT CARDS AFFECT HOME LOAN APPLICATIONS?
Simply owning a credit card impacts your borrowing power. Lenders assess based on the credit card 'limit' NOT on what you owe. It is treated as another loan or commitment which needs servicing. And this takes away from your borrowing capacity.Your credit card is assessed at roughly 3.8% of the limit. So if you have a credit card limit of $40,000, the banks will add $1,520 to your monthly commitments. And when compared to your monthly income, this reduces your borrowing capacity. Multiple credit cards?
A red flag to lenders. It signals that you are living beyond your means. But I've never missed a payment?
This is one of the only times that having a credit card can actually work for you. The lender will see a clear history of payments which will actually prove you properly manage your debts. And in some cases a lender will not even assess your credit card when working out your borrowing capacity. Instead, they might assess based on the largest balance in the last three months. How can I keep my credit card but reduce the limit?
Just call your bank and advise them to do so. If your monthly spend is $1,500 then you do not need $6,000. Reduce your limit. You may need a letter from your bank stating the new credit card limit. You may also need the most recent credit card statement with the new limit. Pay down your debt!
If you know you will be seeking a home loan in the future, start paying down your debt now. Yes, a bank may consolidate, however it will effect your borrowing capacity. So try and make extra repayments. I've missed a payment...
A single missed payment or over limit spend could cause the bank to decline you a home loan. The lender will know if you were late more than five days on your payments in the last 2 years. This is enough to decline you credit. There are specialist lenders who will over look a missed payment. But they usually charge a higher interest rate.
I'm here if you need me.
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Matthew Stack
matthew@mortgagebrokerrevesby.com.au
0423 237 242
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