You've saved hard. Your credit score is healthy. You've never missed a repayment in your life. Then you sit down with a mortgage broker, feeling quietly confident, and they tell you your credit card is cutting around $40,000 off what you can borrow.
Wait, what?
It's one of the most common shocks first home buyers in Australia run into. The card you keep "just for emergencies" or "just for the points" is quietly working against you, even when the balance reads $0. It feels unfair, and fair enough if you're annoyed. But the bank's logic is colder than that, and once you see how it works, you can sort it out in an afternoon.
Does a credit card really affect your borrowing power?
Yes. In Australia, lenders assess your credit card limit, not your balance, when they work out your home loan. A card with a $10,000 limit counts against you even if the balance is zero and even if you clear it in full every single month. The limit is money you could borrow at any moment, so the bank treats it as an ongoing commitment. See your own number on our borrowing power calculator in under two minutes.
How banks actually calculate it
Here's the rule that catches everyone out: the bank doesn't look at what you owe. It looks at what you could owe. A $10,000 limit with nothing on it doesn't read as "responsible person who avoids debt." It reads as "person who could spend $10,000 tomorrow," and that possibility gets baked into your assessment.
Most lenders take around 3% of your total card limit and treat it as a monthly repayment you're already making (some go up to about 3.8%, so it varies). On a $10,000 card, that's roughly $300 a month the bank carves out of your available income, whether or not you've spent a cent.
There's a more thorough version of the same logic that brokers will explain: the lender assumes you could draw the whole limit, then has to be satisfied you could clear it, usually over about three years, on top of your mortgage repayments. Either way, the limit is the number that matters.
And the bank doesn't test you at today's rate. Under APRA's serviceability buffer, lenders must check you can repay at your actual rate plus 3 percentage points, a margin APRA has held steady since 2021. In 2026 that usually lands around 9 to 9.5%. So your card limit isn't just deducted; it's deducted and then stress-tested against a rate higher than you'll ever actually pay.
The real dollar impact
Every dollar the bank pulls out of your monthly income has a multiplier effect on your borrowing power. That $300 a month doesn't shave $300 off your loan. It shaves tens of thousands, because the bank is working out how big a loan that income could service over 25 or 30 years.
As a broker rule-of-thumb, closing or clearing a $10,000 card frees up somewhere around $50,000 to $60,000 of borrowing capacity. It genuinely varies with your lender, loan term and income, so treat it as a ballpark, not a promise. Here's how the limits stack up using the roughly 3% assumption:
- $5,000 limit, about $150/month assessed, roughly $25,000 to $30,000 less borrowing power
- $10,000 limit, about $300/month assessed, roughly $50,000 to $60,000 less
- $15,000 limit, about $450/month assessed, roughly $75,000 to $90,000 less
- $20,000 limit, about $600/month assessed, roughly $100,000 to $120,000 less
Those ranges are illustrative, not a quote. But they show why two modest cards can quietly add up. A $10,000 personal card plus a $5,000 store card is $15,000 in limits, and that can land in the same territory as a small car loan you don't even have.
The points-card trap
Plenty of Australians hold a high-limit card for Qantas points or cashback. A $20,000 limit for the rewards sounds clever, until you realise it can sit around $600 a month in assessed commitments and, on the bigger numbers above, potentially six figures of borrowing power. For a first home buyer, those points can quietly cost you the suburb you actually wanted. Work out what those repayments would look like once you know your real number, and you can decide for yourself whether the rewards are worth it.
But I always pay it off in full, and I never even use it
This is the objection everyone has, and it's a fair one. It still doesn't change the answer: the assessment is built on your limit, not your habits. Ten years of perfect repayments earns you a good credit history, but it doesn't shrink the number the bank deducts. The limit is available to you, so they account for the chance you'll use it.
Same goes for the card sitting in a drawer untouched. An unused card with a $10,000 limit and a $0 balance hits your borrowing power exactly the same as one you swipe every week. That's the catch most people miss. It isn't about how you behave; it's about what's available to you.
One honest bit of nuance, though: that limit only hurts if you're bumping up against your borrowing ceiling. If you've got plenty of headroom for the price you're aiming at, a card might not move the needle at all. The only way to know is to run your numbers, and a good broker can tell you whether you even need to touch it. Find a vetted broker who'll look at your full picture before you start cancelling things.
Will cancelling a card hurt my credit score?
Usually not in any way that matters for buying a home. Closing an account can slightly shorten the length of your credit history, which is one small ingredient in your score, but for most buyers the borrowing-power gain far outweighs it. Closing cards you no longer use is a normal part of getting ready to borrow. Brokers do this with clients all the time, and it's routine in the lead-up to a home loan. If your only goal is the mortgage, the limit you remove helps you far more than the small history change costs you.
Cancel, reduce, or keep? Your pre-application plan
If you're planning to buy in the next year, the tidiest move is to sort your cards roughly six months before you apply. That gives everything time to settle and leaves you with clean paperwork. As a quick rule: cancel the cards you don't truly need, reduce the one you want for emergencies, and only keep a card if a broker confirms it isn't costing you the place you're after.
Cancel cards you don't need
This is the single fastest way to lift your borrowing power. Call the provider, ask for the account to be closed, and get written confirmation that it's shut and the limit is gone. Lenders will want to see that confirmation, not just take your word for it.
Reduce your limit
Want to keep one card for genuine emergencies? Ask to drop the limit to the minimum, often around $1,000 to $2,000. A lower limit means a smaller monthly figure deducted, so you keep the safety net without the full hit. Again, get the change in writing.
Don't open new cards
Every new credit application leaves an enquiry on your file. A cluster of recent enquiries can read as someone scrambling for credit, which makes lenders nervous. Steer clear of any new credit in the six months before you apply.
Check your credit report
Pull your free credit report and look for old cards or accounts you've forgotten about, since closed accounts sometimes still show as open. Australia now has effectively two consumer credit reporting bodies, Equifax and Experian (Experian acquired illion in 2024, so illion's data is being consolidated into the Experian report). You're entitled to a free report every three months from each. If you spot an error, dispute it before you apply.
Buy Now Pay Later counts too
Afterpay, Zip and Humm aren't free passes either. Since Buy Now Pay Later became regulated credit under the National Consumer Credit Protection Act from 10 June 2025, providers run proper affordability checks, and lenders now factor your BNPL use into your serviceability the same way they would a card. Clear any outstanding balances and close the accounts you don't need before you apply. Even modest amounts can show up in your assessment, and regular BNPL activity in your bank statements can prompt a lender to look harder at your spending.
What this means if you're a first home buyer
For first home buyers, the card problem can bite twice. The obvious hit is serviceability, the number we've been talking about. The quieter one is a newer rule.
From 1 February 2026, APRA caps how much high debt-to-income lending banks can write: no more than 20% of a lender's new mortgages each quarter can go to borrowers whose total debt is six times their gross income or more. Your card limits feed into that assessed-debt figure. So it's now possible to pass serviceability comfortably and still get knocked back, simply because the lender's quarterly bucket of high-DTI loans is full and your card limits nudged you over the 6x line. Trimming those limits can be the thing that keeps you under it.
There's an upside too. Lifting your borrowing power can open up the Australian Government 5% Deposit Scheme (formerly the First Home Guarantee), which lets eligible first home buyers in with a 5% deposit and no Lenders Mortgage Insurance, provided the property sits under the price caps. A bigger borrowing figure can mean a home that actually fits the scheme, rather than one just out of reach.
None of this is about giving up your cards forever. It's about going in clean. Sort your limits, run your real number on the borrowing power calculator, check whether the 5% Deposit Scheme fits you, and if you want a second set of eyes, talk to a broker before you change anything. A good one will tell you which card to close first and exactly how long to wait. And if you're earlier in the process, our step-by-step journey walks you through what comes after the numbers.
Frequently asked questions
Does a credit card affect my home loan if the balance is zero?
Yes. Lenders assess your credit card limit, not your balance, so a $0 card with a $10,000 limit still reduces your borrowing power. The limit is credit you could draw at any time, so the bank treats it as an ongoing commitment regardless of what you actually owe.
How much borrowing power does a $10,000 credit card cost me?
As a broker rule-of-thumb, roughly $50,000 to $60,000, because lenders assess about 3% of the limit (around $300 a month) as an ongoing commitment. The exact figure varies with your lender, loan term and income, so treat it as a ballpark rather than a guarantee.
Should I cancel my credit card or just reduce the limit before applying?
Either helps. Cancelling removes the limit entirely and gives the biggest boost, while reducing the limit keeps a small buffer for emergencies. Whichever you choose, get written confirmation of the change, because your lender will want to see it for your application.
How long before applying for a home loan should I cancel a card?
Ideally around six months, so everything settles and your paperwork is clean. That said, the lender's assessment updates as soon as they see written confirmation the card is closed; the update to your credit file itself can lag anywhere from a few days to a few weeks.
Do banks count Afterpay and Zip when I apply for a mortgage?
Yes. Buy Now Pay Later became regulated credit in June 2025, and most lenders now factor Afterpay, Zip and Humm into your serviceability. Clearing and closing unused BNPL accounts before you apply keeps your assessment clean.
