The season of joy and cheer is traditionally known to leave the merrymakers with happy hearts and overdrawn pockets – with credit card debt touching record heights every year.

Fortunately, in 2017, “Australian consumers launched into their annual Christmas spending spree with the average credit card debt at the lowest level in a decade,” read an article on According to data, the average outstanding credit card balance was $3061.90 at the end of October which has been the lowest in a decade.

Credit card, borrowing capacity and home loan

A more recent report reveals Australians borrowed $29 billion or $1,727 per card in December 2017, with 81 percent credit card holders hoping to pay off the debt within the next three months.

Smashing plastic debt

In the ten years between 2000 and 2010, 6 million credit cards were issued and Australia’s total credit card debt touched $49 billion. However, 2017 was a year of change. Since the plastic boom in the 80s, October 2017 saw the first ever decline in the number of credit cards issued.

According to the figures released by the RBA, the value of debit card transactions increased by 9 percent between January and October 2017, overtaking the 4 percent growth in credit card spend. This is a clear sign that millennials prefer to use credit cards much lesser than their ancestors, and are more likely to keep their credit in order.

How credit cards impact your home loan application

Did you know your highly rewarding credit card could be eating away at your borrowing capacity, silently? Yes, while you remain busy collecting air miles, your credit card could be impacting your future mortgage application in more ways than one.

Why? Because lenders treat your collective credit card limit as future debt!

Even if you pay your credit card bills regularly, lenders don’t care how much you pay and when, while deciding your borrowing capacity. Because, it is not your debt but credit limit that matters!

However, this does not mean you stop using credit cards altogether; but reducing your credit limit to the minimum amount you are comfortable with could boost your borrowing capacity considerably. Besides, it will also curb the urge to overspend during sales on items you don’t need. Just to tell you, if you are pining for the rewards that come with your credit card, you can now access similar benefits on specific debit cards as well – just hop onto any comparison site and upgrade your debit card to one that suits your lifestyle.

Here’s what you must remember before you apply for a home loan:

Reduce your credit limit – A few months before applying for a home loan, call up your credit card provider and ask them to reduce your credit limit. Once done, keep your written notice of reduction safe.

Don’t incur new debts – When you are planning your life’s biggest purchase, your home, it is advisable to refrain from taking on any new debt – such as a car loan or a personal loan. Even when your mortgage application is pre-approved, avoid making large purchases on your credit card at the upcoming IKEA sale as your finances are heavily scrutinised between pre-approval and approval and small mistakes could derail your home loan application completely.

Get debt busting – By reducing the number of debts on your file, you improve your borrowing power and showcase financially responsible behaviour to prospective lenders. A few months before you apply, start busting your debts strategically. Apart from maintaining minimum repayments on each loan you have, pool your finances towards paying off the most expensive or largest loan first. Read more here.

Compare home loans – With increasing competition in the mortgage industry, many banks and non-bank lenders are offering low interest rates and additional features, at no extra cost, to those who are smart enough to look around. Be financially savvy and compare mortgage rates online before you lock in a rate for purchasing your dream home. Compare now.

Apart from hundreds of new and refinancing home loan deals, if you are looking for a special home loan, such as a low-doc or a low deposit loan, you could always consult a mortgage broker, who will help you understand your situation better and guide you to the right home loan product for your requirement. Get in touch with an expert here.


By Vidhu Bajaj,
HashChing Content Writer



HashChing is helping Australians by providing access to the pre-negotiated home loan deals. Obligation free consultation with one of our partner brokers might save you time, hassle and money.

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