Your credit card could be killing your hopes of financing your next property. Here’s why …
Welcome. In this week’s Bush Bite, I want to ask you: Are your credit cards costing you your next property? Let me also then ask you: Do you have a credit card, an interest free card, some store cards or something similar? Currently there are 13 million credit cards in Australia with an average balance of just under $3 000, and apparently about 70% of all adults have a credit card, with many of us having multiple.
What you may not know is that credit cards have a massive impact on how much you can borrow towards getting your next property. Interestingly, banks don’t look at the balance on the card, they look at the limit and then they assume a minimum payment of 3% per month of that limit, which equates to a whopping 36% interest rate per year. So you may have cards that you’ve never used or haven’t used for years, but they’re still severely reducing how much you can borrow on your next property.
As a rule of thumb, for every $1 000 of limit you have on a credit card, it reduces how much you can borrow by up to $4 000 – $7 000, depending on which lender you’re talking to. So a $10 000 credit card limit reduces how much you can lend up to $40 000 to $70 000. This may be enough to actually prevent you from getting your next property. So the bottom line is, cancel any unused cards and reduce the limit to the absolute minimum. While we’re at it, don’t go over the limit in terms of your spending per month and don’t be late and making the repayments because they can be red flags and knock out punches to some lenders and some banks!
The bottom line, cut your credit cards to the limit if you want to get an extra.
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