credit card limits affecting your home loans

[trippin_the_rift]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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?

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?

 

[Dave Noble]

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]

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]

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]

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]

why would every lender ask this question then?

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?

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]

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]

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]

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]

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