High credit card limits reduce home loan suitability

Tuesday 22 December 2009

Article by Mozo

Bank customers with high credit card limits are less likely to be approved for a home loan, an expert has said.

Lisa Montgomery, head of consumer advocacy at Resi Mortgage Corporation, told the Australian Associated Press (AAP) that lenders consider a high card limit to reduce a borrower’s capacity to repay a mortgage.

She added that lenders were not concerned with the amount a customer owed on a card, only the total that they could be liable for if they spent on it to the maximum.

"A borrower may only owe $1,000 on a limit of $15,000, but lenders must assume that the borrower can owe that $15,000 the day after settlement, placing them in a potential hardship position," Ms Montgomery told the news provider.

The advice will be of interest to anyone who decides to compare credit cards or compare home loans. Ms Montgomery said that reducing a credit card limit before shopping around for a loan could massively increase a borrower’s options and entitle them to a bigger and better loan.

Recent figures from the Reserve Bank of Australia revealed that the value of credit and charge card transactions fell by 0.3 per cent in October, as customers targeted debt reduction with credit card repayments rising by 0.2 per cent in the same time.

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