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Mortgage shock as Aussie realises everyday item slashes borrowing power by half

Olivia was surprised when she was told she could only get a $450,000 loan.

A woman has issued a warning to homebuyers across Australia after discovering her credit card had slashed her borrowing power by half. It's a timely reminder that there are many things lenders take into account when assessing how much you can borrow.

Olivia and her partner were considering buying an investment property and were told they could take on a $450,000 loan. She thought they'd be eligible for a much bigger loan, and would likely need it considering the mean Australian home now costs around $933,000.

"I was not expecting it to be that low," she said. "Like, even in these conditions... I've done some math and what the hell?"

Olivia sitting in her car
Olivia couldn't believe it when she found out what was affecting her borrowing power. (Source: TikTok)

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Only when she dug a little deeper did she realise what was holding them back: their credit cards.


"I was like wow, so basically with these credit cards just being open we can borrow half and it doubles our borrowing capacity if we close them," she said on TikTok.

Olivia said she and her partner don't use the cards extravagantly, just to pay the bills and buy groceries.

However, in the eyes of the banks, they are considered maxed out, even if customers pay back their balances on time.

Tiimely Home lead broker Barbara Giamalis said many Australians got a credit card because they thought it would establish a credit history and prove they could pay back their debts.

But she said that's a myth.

"If you’ve got a $10,000 limit then we base it on the $10,000 limit, whether it’s on a $0 balance or not, so getting rid of credit cards makes a huge difference on servicing," she said.

"I don’t dislike credit cards, I’ve got one myself but there’s good and bad credit, and it’s bad when you want to borrow the maximum.”

According to an analysis by Compare the Market, a $10,000 credit card limit held by someone earning $100,000 a year would shrink their borrowing capacity from $505,000 to $552,000, a difference of $47,000 if they were to ditch their card altogether.

For someone with a $15,000 credit card limit, getting rid of their credit card could boost their borrowing power by $71,000.

Olivia revealed her credit card limit was close to $50,000, which is why her borrowing power was so greatly affected.

Compare the Market economic director David Koch told Yahoo Finance many aspiring first-home buyers don't realise how detrimental credit cards could be to their borrowing power and while they might not want to or be able to cancel their credit cards, he suggested another option.

“If you don’t want to cut up your credit card, you could consider lowering your limit,” he said.

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