Did you know… the impact credit cards have on your borrowing capacity?
I regularly meet people applying for a home loan and I ask them the amount of their credit card limit. Most reply “I’m not entirely sure”, but then confidently follow up with, “but I pay it off each month so it doesn’t matter”.
In reality it does matter. Banks look at your credit card limit, even if you pay it all off each month. As a rule of thumb, each $25k of credit card limit reduces your borrowing capacity by $100k.
So the next time a bank offers you to increase your limit, my suggestion would be to cancel the card. If you insist on having a credit card, don’t keep bumping up the limit just because you can. It does have an impact when you want a loan.
In reality it does matter. Banks look at your credit card limit, even if you pay it all off each month. As a rule of thumb, each $25k of credit card limit reduces your borrowing capacity by $100k.
So the next time a bank offers you to increase your limit, my suggestion would be to cancel the card. If you insist on having a credit card, don’t keep bumping up the limit just because you can. It does have an impact when you want a loan.
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