Savvy credit card tips for your home loan application
When you apply for a home loan, a lender will take into account each aspect of your finances to assess your borrowing capacity and to decide whether to approve or decline your application.
Simply owning a credit card can have an impact on your home loan application. If you’re worried your credit card debt will stand in the way of you getting approved or potentially reducing your borrowing capacity, here are some tips that could help your application look more desirable to a lender.
1. Make your credit card repayments on time
With your repayment history information now included on your credit report, demonstrating your ability to make your credit card repayments on time is now more important than ever, as late or missed payments can stay on your credit report for up to 2 years and could negatively impact your credit reputation.
Savvy Tip: Set up automatic payments and calendar reminders or download these essential apps to help you stay on top of your repayments. You can also follow these 4 steps to help you pay your bills on time.
2. Keep your credit card limits low
Your credit card limit is also reported on your credit report. If you have multiple credit cards, your lender may deem you a higher financial risk if they believe your combined credit limits are too high, even if you’ve never come close to maxing out your cards.
Savvy Tip: Contact your credit card provider to reduce your credit limits to what you actually need and do this as early as possible before applying for a home loan.
3. Avoid maxing out your card
Depending on your credit limit, a maxed-out credit card balance could take years to repay, particularly if you only make the minimum payment each month.
Savvy Tip: Aside from reducing your credit card limits, it’s a good idea to review your spending habits and find ways to cut down on your expenses.
4. Limit the number of credit cards you hold
If you carry multiple credit cards, you could consider consolidating your credit card debts into one personal loan to help you better manage and pay off your debts before you apply for a home loan. However, weigh up your options carefully and look out for any extra fees associated with consolidation to ensure they don’t outweigh the benefits.
Savvy Tip: If you decide to take out a debt consolidation loan, remember to cancel the cards that you have consolidated to prevent accumulating more debt.
5. Reduce your credit card debts
Try and make extra repayments every month to help clear your debts sooner, as this can help your application look more favourably to lenders.
Savvy Tip: Once you have paid off your credit card debt, consider reducing your credit limit or even closing your credit card account altogether to improve your chances of approval.
If owning a home is a priority to you, making necessary changes to the way you manage your finances and your lifestyle can help put you a step further in securing your home loan.
Ready to start comparing home loans? Check out Credit Savvy’s home loan comparison service.
If you’re looking to speak to an expert, request a free appointment with an eChoice mortgage expert today!