Nearly 70% of Australians have a credit card, but how many know how credit cards can affect your loan eligibility?
When applying for a loan, lenders are concerned about your income, expenses and debts. Using this information, they’ll calculate your debt-to-income ratio to determine if you’ll be able to manage your loan repayments.
But what may come as a surprise is that they’ll actually use your credit card limit—the possible debt you may accrue in the future— not your current balance owing to figure out your monthly credit card expense.
When calculating your monthly credit card expense as part of your home loan application, the lender will generally assume a monthly repayment of about 3% of your card limit.
For example, some banks calculate the amount needed to repay the credit card limit and interest rate charges over a three-year period as part of the home loan assessment process. This helps the lender determine whether you will be able to service the loan and your potential credit card debt.
Therefore, you should take stock of how many credit cards you have and what their credit limits are before beginning your home loan application as they may affect your borrowing capacity.
Take charge of your credit cards
To get on the right path towards home loan eligibility, talk to us today.