Tuesday, December 9, 2008

"Look to your credit cards..."

"Simple!" everyone says when I say this to them. "I've eradicated my credit card debts. My cards are clear."

That's all well and good, but if you're trying to get a home loan, the banks don't so much care about whether you have any credit card debt, as how much your credit limit is. Yep, that's right!

A friend often proudly announces he used to be able to buy property in WA without breaking the limit on his cards. But these days that is not so easy. And so many people think that just because they don't have any debt on their cards, they should still be able to get a loan.

Unfortunately, the banks regard the credit limit on your cards as a major liability. So there might be nothing on them now, but there's no guarantee that your $20,000 limit won't be blown in one big spending spree. And they can check this with the credit reporting agencies as well. So before you go and get another CRA hit on your card applying for another loan, look to your credit cards again.

It's worth phoning your bank and asking for a reduction in your credit limit to as low as you can get it while applying for a home loan. Dropping everything to $500, even for a few weeks while you get the loan sorted out, should be sufficient to make sure you get over the line in some cases (of course, it's not always the reason they won't lend to you, but that's another story for another day!).

There's no reason why you can't get most - or all - of your card limits back later.

If you really want them that way...