Aspiring first home buyers could improve their borrowing power by $71,000 by getting rid of their credit card.

Unknown to many, having a $15,000 credit card limit could reduce someone’s borrowing capacity by $71,000.

Compare the Market Economic Director David Koch said many house hunter hopefuls are unaware of the how detrimental having credit cards can be to their borrowing power.

“There’s a misconception that the bank will just simply subtract the credit card limit amount from your borrowing power – but that’s not true,” Mr Koch said.

“Credit cards can reduce people’s borrowing power by $50,000 or more.”

According to a Compare the Market analysis, a $10,000 credit card limit held by someone earning $100,000 would reduce their borrowing capacity from $552,000.00 to $505,000.00, a difference of $47,000.

Even if they had a limit of $2,000, their borrowing capacity would take a $10,000 hit.

Mr Koch said lenders have become much more cautious to account for the risk of recession and will look at anything that may affect your ability to repay a loan.

“If you don’t want to cut up your credit card, you could consider lowering your limit,” Mr Koch said.

“Credit cards can be useful in building up a credit history before buying, but only if you’ve met your repayments, paid on time and remembered to pay the annual fee.”

Previous articleMan Dies in Greenbank Floodwaters
Next articleFootball Club Rises from the Ashes Thanks to ‘Powerful’ Community Camaraderie