You've been saving diligently. Your credit score is good. You've never missed a payment on anything. You sit down with a mortgage broker, feeling confident — and then they tell you that your credit card is reducing how much you can borrow by $40,000.
Wait, what?
This is one of the most common — and most frustrating — surprises for first home buyers in Australia. The credit card you carry "just for emergencies" or "just for the points" is actively working against you, even if your balance is zero.
How banks actually assess your credit card
Here's the rule that changes everything: banks don't care about your credit card balance. They care about your credit card limit.
If you have a credit card with a $10,000 limit and a $0 balance, the bank doesn't see a responsible person who doesn't use credit. They see someone who could, at any moment, go out and spend $10,000. And they factor that potential spending into your borrowing capacity assessment.
The standard approach most lenders use is to assess approximately 3% of your total credit card limit as a monthly commitment. So that $10,000 card? The bank deducts roughly $300 per month from your available income — every single month, regardless of whether you've spent a cent.
The real dollar impact on your borrowing power
Let's put this into real numbers. When a bank calculates how much you can borrow, they take your available monthly income (after tax, expenses, and existing debts) and work out the maximum loan you can service at the stress-test rate (currently around 9.5%).
Every dollar deducted from your monthly available income has a multiplier effect on your borrowing capacity. That $300/month the bank deducts for your credit card doesn't just reduce your loan by $300 — it reduces it by approximately $35,000–$50,000, depending on the loan term and assessment rate.
Got two cards? A $10,000 personal card and a $5,000 store card? That's $15,000 in limits, roughly $450/month in assessed commitments, and potentially $50,000–$70,000 less borrowing power. All for cards you might not even use.
The "points" trap
Many Australians hold high-limit credit cards for frequent flyer points or cashback rewards. A $20,000 limit card for Qantas points sounds great — until you realise it's costing you $600/month in assessed commitments and roughly $70,000–$85,000 in borrowing capacity. Those points suddenly look very expensive.
But I always pay it off in full!
It doesn't matter. The bank's assessment is based on your available credit limit, not your repayment behaviour. Even if you've paid your balance in full every month for 10 years straight, the bank still deducts the same amount. Their logic is simple: the limit is available to you, so they must account for the possibility that you'll use it.
This isn't about your responsibility or your credit score. It's a mechanical calculation that treats every dollar of available credit as a potential liability.
What to do before you apply for a home loan
If you're planning to buy a home in the next 6–12 months, here's your credit card action plan:
1. Cancel cards you don't need
This is the single fastest way to boost your borrowing power. Call your bank, request the card be closed, and get written confirmation that the account has been closed and the limit removed. You'll need this documentation for your home loan application.
2. Reduce limits on cards you want to keep
If you want to keep one card for genuine emergencies, call the bank and ask to reduce the limit to the minimum — often $1,000 or $2,000. The lower the limit, the less impact on your borrowing power.
3. Don't open new cards
Every new credit application creates an enquiry on your credit file. Multiple recent enquiries can signal to lenders that you're desperate for credit — which is a red flag. Avoid applying for any new credit in the 6 months before your home loan application.
4. Clear any Buy Now Pay Later balances
BNPL services like Afterpay, Zip, and Humm are now assessed by most lenders. Clear any outstanding balances and close the accounts if possible. Even small amounts can impact your assessment.
5. Check your credit report
Request a free credit report from Equifax, Experian, or illion. Look for any old credit cards or accounts you've forgotten about — sometimes closed accounts still show as open. If you find errors, dispute them before applying for your home loan.
How much could you gain?
Closing a single $10,000 credit card can add $35,000–$50,000 to your borrowing capacity. For many first home buyers, that's the difference between affording the property you want and having to compromise.
The best part? It costs you nothing. It takes one phone call and a few days to process. And the impact on your borrowing power is immediate.
Run your numbers on NestPath's free borrowing power calculator to see exactly how your credit cards are affecting your borrowing power — and what happens when you remove them. Even better: before making any changes, talk to a vetted mortgage broker — a good broker will tell you which cards to close first, how long to wait before applying, and whether to pursue pre-approval now or after the clean-up.
Frequently Asked Questions
How long does it take to buy a house in Australia?
The typical timeline from first budget calculation to settlement is 3-6 months. Pre-approval takes 1-2 weeks, house hunting varies, and settlement runs 30-90 days after exchange depending on your state.
What are the steps to buying a house in Australia in 2026?
The key steps are: calculate your budget, get pre-approved, research suburbs, inspect properties, make an offer, arrange building inspection, exchange contracts with your solicitor, get home insurance, and settle. NestPath's 8-step journey tracker guides you through each one.
How much deposit do I need to buy a house in Australia?
The standard benchmark is 20% to avoid LMI, but with the First Home Guarantee you can buy with just 5% and no LMI. You also need 3-5% of the purchase price for additional costs like stamp duty, legal fees and inspections.
