Credit Cards and Your Borrowing Power: What you need to know.

There are a few terms thrown around when talking about purchasing a home, and a big one is “Borrowing Power”: what you could potentially borrow from the bank to buy a home.

There are a few ways you can work on increasing your borrowing power but one you may not be aware of relates to a more familiar financial product: your credit card.

Did you know that reducing your credit limit can increase your borrowing power?

There are a whole range of factors the bank looks at when assessing a loan application from you, including:

the deposit you have saved

your living expenses

your current debt, and

your income, ability to repay the loan comfortably.

But what might surprise you is that your credit card limit is also a factor – whether you have used it or not.

This is because banks have to account for all available credit when figuring out what you can afford. If you were to carry a balance, those repayments would have an impact on your budget, and your ability to pay off your home loan.

So by reducing the credit you have access to, you may be able to increase your borrowing power to purchase your first home.