credit card limits affecting your home loans | Australian Frequent Flyer
Australian Frequent Flyer

Welcome to Australia's leading independent Frequent Flyer and Travel Resource since 1998!
Our site contains tons of information that will improve your travel experience.

Joining AFF is fast, simple & absolutely free - register now and take immediate advantage of these great BENEFITS.

Once registered, this box will disappear. And you will see fewer advertisements :)

credit card limits affecting your home loans

Status
Not open for further replies.

trippin_the_rift

Established Member
AFF Supporter
Joined
Apr 2, 2006
Messages
3,651
I'm thinking of borrowing a few bucks for a new home but one of the questions that I've noticed come in lately is "your total credit card limits".

My true credit limits is insane and would significantly affect borrowing power.... how does everyone else get around this?
 

NM

Enthusiast
Moderator
Joined
Aug 27, 2004
Messages
15,813
Qantas
LT Gold
Virgin
Red
Flights
My Map
I handle it by not having more available credit than I need. I refuse the regular offers by my current CC proviers for limit increases because I have no intention of ever using credit cards for those levels of debt.

If its going to cause you problems with a loan, then cancel some of the high limit cards, or ask the provider about reducing the limits. They will be reluctant to reduce your limits since they want to lock you in to use them for credit, which is why they give such large credit limits in the first place.

Citibank tried to increase my Redicredit account credit limit by $10,000 last week. That is just rediculous since in the few years I have had the account I have never been more than about $500 in credit and that was only for less than a day. I use it as a free cheque account and in the past for overseas ATM withdrawals and transfer the fund into the account the same or following day. So what possible valu is there for my available credit limit to be increased to well over $30,000? None whatsoever. But there is every incentive for Citibank to get me to do it. I very nearly called them and said "thanks for prompting me about the value of my credit limit. Instead of increasing it by $10,000, please reduce it by that same amount. Oh and each time you ask me to increase it, I will call back and ask for a similar decrease until I am happy that the limit reflects the quality of the service".
 

Shano

Established Member
Joined
Aug 17, 2006
Messages
1,229
Flights
My Map
My credit limit probably isn't anywhere near as high as yours, but I was also a little concerened about this when applying for a loan.

I took out my loan through a mortgage broker. When filling in the CC section on the loan application I explained to the broker that my two high limit cards (~$30,000 each) were cards that I used exclusively for business expenses and were re-imbursed in full each month by my employer (my employer does not issue corporate credit cards). The broker recommended that I leave these cards off the application which was never questioned by the bank.

I should add that I rarely get close to 50% of these limits, which makes me ponder NM's approach

I have another card with limit less than $10,000 that I use for personal expenses. This is more than enough for my personal purchases.
 

simongr

Enthusiast
Joined
Jul 10, 2006
Messages
14,229
How do they account for things like a Amex Gold Charge card? It has no limit - do I just put 0 down for that?
 

Shano

Established Member
Joined
Aug 17, 2006
Messages
1,229
Flights
My Map
simongr said:
How do they account for things like a Amex Gold Charge card? It has no limit - do I just put 0 down for that?
My mortgage broker was happy for me to leave my Diners off the application as well.
 

JohnK

Veteran Member
AFF Supporter
Joined
Mar 22, 2005
Messages
41,371
I am not sure whether the lender would check/verify every detail you have provided. I guess they would expect you to be honest, and in the majority of cases they would be only interested in proof of income or investments.

I have not applied for a loan for a few years now but I have been known to forget the occassional credit card or two on a loan application.
 

trippin_the_rift

Established Member
AFF Supporter
Joined
Apr 2, 2006
Messages
3,651
Shano said:
My credit limit probably isn't anywhere near as high as yours, but I was also a little concerened about this when applying for a loan.

I took out my loan through a mortgage broker. When filling in the CC section on the loan application I explained to the broker that my two high limit cards (~$30,000 each) were cards that I used exclusively for business expenses and were re-imbursed in full each month by my employer (my employer does not issue corporate credit cards). The broker recommended that I leave these cards off the application which was never questioned by the bank.

I should add that I rarely get close to 50% of these limits, which makes me ponder NM's approach

I have another card with limit less than $10,000 that I use for personal expenses. This is more than enough for my personal purchases.

This approach makes sense!

I have also heard of ANZ reopening customers accounts after they close them (for free) just incase it was a mistake.
 

nagelixin

Junior Member
Joined
Oct 12, 2006
Messages
28
The only way that a bank can find out your credit card limits is;

a) you bank with them
b) they ask for evidence, such as statements to verfiy your limits etc.


Your baycorp file will usually not mention how much you were given for the initial limit on your credit card, or any future increases.
 

NM

Enthusiast
Moderator
Joined
Aug 27, 2004
Messages
15,813
Qantas
LT Gold
Virgin
Red
Flights
My Map
nagelixin said:
The only way that a bank can find out your credit card limits is;

a) you bank with them
b) they ask for evidence, such as statements to verfiy your limits etc.


Your baycorp file will usually not mention how much you were given for the initial limit on your credit card, or any future increases.
Just be aware that providing incorrect information on the application form may leave you in a sticky legal situation at a later time. They may not be able to find out now, but if you default and they looking for you through the court system you could be in trouble if they find your signed declaration is incorrect.
 

Sheriff

Member
Joined
May 22, 2005
Messages
167
I'm thinking of borrowing a few bucks for a new home but one of the questions that I've noticed come in lately is "your total credit card limits".

My true credit limits is insane and would significantly affect borrowing power.... how does everyone else get around this?
Your putting to much emphasis on credit limits.

I have been asked this question often, have always answered truthfully and found it has never affected my borrowiing power.

Income and liabilities are what matter when applying for a loan. These will definitely affect your borrowing power.

From a bank's point of view your income and liabilities are what will ultimately determine your ability to service a loan.

Cheers
Sheriff
 

trippin_the_rift

Established Member
AFF Supporter
Joined
Apr 2, 2006
Messages
3,651
Sheriff said:
Your putting to much emphasis on credit limits.

I have been asked this question often, have always answered truthfully and found it has never affected my borrowiing power.

Income and liabilities are what matter when applying for a loan. These will definitely affect your borrowing power.

From a bank's point of view your income and liabilities are what will ultimately determine your ability to service a loan.

Cheers
Sheriff

why would every lender ask this question then?:confused:

Let me give you an example:

Make $100k/yr but have 250K in credit card limits.
Or Make $100k/yr but have 20k in card limits.

You would think they don't care? :confused:
 

Dave Noble

Senior Member
Joined
Oct 10, 2005
Messages
6,419
trippin_the_rift said:
I'm thinking of borrowing a few bucks for a new home but one of the questions that I've noticed come in lately is "your total credit card limits".

My true credit limits is insane and would significantly affect borrowing power.... how does everyone else get around this?
I haven't read the forms, but just wondering if whether the question that they are meaning to ask is what the current level of debt is on the cards rather than what the theoretical debt limit is?

Or are they concerned that if someone has a debt card limit of 50k ( even if they only have $200 on it ) that they have the unfettered ability to get $50k into debt and want to take this into consideration

Dave
 

Mal

Enthusiast
AFF Supporter
Joined
Dec 25, 2004
Messages
12,269
Flights
My Map
I believe some banks care about potential debt and others actual debt.

It depends on their risk profiles that they choose to use.

If your bank objects to your $140000 credit limit when applying for a home loan, then it can be a bargaining chip with the bank.

When the loan is rejected, request the reason - they will say that your assets and liabilities are out of whack, or that you have too much potential credit. At that point, offer to reduce your credit card (unexposed) liabilities and see if that makes a difference.
 

simongr

Enthusiast
Joined
Jul 10, 2006
Messages
14,229
Dave Noble said:
I haven't read the forms, but just wondering if whether the question that they are meaning to ask is what the current level of debt is on the cards rather than what the theoretical debt limit is?

Or are they concerned that if someone has a debt card limit of 50k ( even if they only have $200 on it ) that they have the unfettered ability to get $50k into debt and want to take this into consideration

Dave
I have seen questions asking for both the limit and the amount on the card. I guess someone who access to high debt may be considered a risk in that they have greater opportunity to get into trouble.

The thing is that even if you had low levels of debt at the point of getting a mortgage - you could then immediately get more credit card debt (even using house as security) and the first thing you are going to do if you get into trouble is get more debt...
 

swissbignose

Member
Joined
May 5, 2003
Messages
145
Dave Noble said:
Or are they concerned that if someone has a debt card limit of 50k ( even if they only have $200 on it ) that they have the unfettered ability to get $50k into debt and want to take this into consideration
That is what I understand the reason is. From what I've been told, (certain) banks assume that if you have a credit limit of $x, that you will have to service that debt at 3% of the credit limit, and thus, this will impact your ability to service the mortgage.

It apparently doesn't matter whether you are the type of individual who pays the card off every month.
 

Sheriff

Member
Joined
May 22, 2005
Messages
167
why would every lender ask this question then?:confused:

Let me give you an example:

Make $100k/yr but have 250K in credit card limits.
Or Make $100k/yr but have 20k in card limits.

You would think they don't care? :confused:
Your borrowing power depends on your repaying power,which depends on your income and liabilities.Credit limits are only important if you have outstanding balances/liabilities at the time of application. These will directly affect your repaying power and the amount you can borrow.Credit limits alone are meaningless.

Cheers
Sheriff
 

Dave Noble

Senior Member
Joined
Oct 10, 2005
Messages
6,419
Sheriff said:
Your borrowing power depends on your repaying power,which depends on your income and liabilities.Credit limits are only important if you have outstanding balances/liabilities at the time of application. These will directly affect your repaying power and the amount you can borrow.Credit limits alone are meaningless.

Cheers
Sheriff
I can see 2 sides... In one way they are not since you dont have that debt at the moment, however if you have the debt limit you could get that debt at any time without any impedence.

If they assess the application based on the limits rather than actual debt, then they are taking a safer approach to ensuring that the applicant will be able to meet obligations based on the credit available to him even if not actually making use of the facility at the time of application

Dave
 

Sheriff

Member
Joined
May 22, 2005
Messages
167
I can see 2 sides... In one way they are not since you dont have that debt at the moment, however if you have the debt limit you could get that debt at any time without any impedence.

If they assess the application based on the limits rather than actual debt, then they are taking a safer approach to ensuring that the applicant will be able to meet obligations based on the credit available to him even if not actually making use of the facility at the time of application
Clearly it would be unrealistic to assess a home loan application based on the applicant’s ability to service a credit card debt which doesn’t actually exist.

It would also be unrealistic to assess an application based on the applicant’s potential to acquire credit card debt based on credit limit.

Cheers
Sheriff
 

NM

Enthusiast
Moderator
Joined
Aug 27, 2004
Messages
15,813
Qantas
LT Gold
Virgin
Red
Flights
My Map
Sheriff said:
Clearly it would be unrealistic to assess a home loan application based on the applicant’s ability to service a credit card debt which doesn’t actually exist.

It would also be unrealistic to assess an application based on the applicant’s potential to acquire credit card debt based on credit limit.

Cheers
Sheriff
I don't know about other banks, but when I last took out a loan (home loan) from one of the large Australian banks, they did consider credit card credit limits as debt. They added up on one side of the ledger all current "loans" and that included personal loans, other mortgages, investment loans and all credit card credit limits. From that they estimated the monthly loan repayment liability and added other regular outgoings. This was measured against income from all regular sources (so that included investment incomes such as rental property rent that would then offset the investment loans etc).

I went through the process in detail with the loans officer, and they certainly were taking the credit card credit limit as an existing debt even if the balance was zero.

Now I only have that experience from one loan application from one bank, and that was quite some time ago as well. So other lenders may treat the calculations differently, and this bank may have changed since then (late 1990s).
 

Shano

Established Member
Joined
Aug 17, 2006
Messages
1,229
Flights
My Map
NM said:
Now I only have that experience from one loan application from one bank, and that was quite some time ago as well. So other lenders may treat the calculations differently, and this bank may have changed since then (late 1990s).
I would suspect that greater competition in the home loan sector may have caused some relaxation in lending criteria.

It does seem though that there is not much consistency to how the banks perform these calculations [although perhaps the big 4 banks are somewhat more aligned]. When I first started shopping around for my home loan there was a significant difference in my assessed borrowing power between different institutions. Even with my current lender, what they were prepared to lend me was nearly twice what I felt comfortable servicing. I guess that they all have slightly different risk assessment methodologies
 
Status
Not open for further replies.

AFF on Air Podcast

  • Are Loyalty Programs a Scam? – AIR020
    Sat, 21 Sep 2019 08:36:18 AEST
      The ACCC recently released a damning draft report into Australian loyalty schemes, calling out practices that it says may shock consumers and putting loyalty program opera ...
  • Air Chathams – AIR019
    Sat, 07 Sep 2019 16:41:06 AEST
      With less than two weeks until the upcoming Qantas Frequent Flyer changes, now is the time to make any last-minute Classic Flight Reward bookings! In this episode, Matt ch ...
  • Project Sunrise – AIR018
    Sat, 24 Aug 2019 16:12:31 AEST
      Later this year, Qantas will decide which aircraft it will use to operate non-stop flights from the east coast of Australia to London and New York - a feat it aims to achi ...
  • Choosing a Rewards Program – AIR017
    Sat, 10 Aug 2019 13:32:24 AEST
      If you're new to the world of frequent flyer points - or moving to a new country - it can be difficult to know where to start. In this episode, Matt discusses the consider ...
  • Travel Insurance – AIR016
    Sat, 27 Jul 2019 07:34:12 AEST
      They say that if you can't afford travel insurance, you can't afford to travel! In this episode, Matt chats to James Green about the importance of travel insurance, and wh ...

Community Statistics

Threads
82,912
Messages
1,922,732
Members
50,571
Latest member
paul86
Top