How Reduced Credit Card Use Can Help Your Home Loan Application

Fewer Australians are relying on credit cards, and if you’re planning to apply for a home loan, that shift could work in your favour. Reserve Bank of Australia (RBA) figures show the number of personal credit cards in circulation fell to a new low of around 12.19 million by April 2026, continuing a longer-running decline that was already evident in 2025, when card numbers were down 1.7%, and card debt attracting interest was down 0.4% year-on-year.

Debit cards now account for roughly half of all payments in Australia, more than three times their share back in 2007, while credit cards make up around a quarter. Much of the shift comes down to people preferring to spend their own money rather than borrowed funds, along with reward schemes losing some of their shine.

For anyone getting ready to apply for a mortgage in Mandurah or across the Peel region, this trend matters more than it might first appear. Lenders don’t just look at whether you carry a credit card balance; they look at your credit cards, full stop.

Why Lenders Care About Your Credit Card Limit

Even if you pay your credit card off in full every month and never carry a balance, lenders still factor in your credit limit as if it were fully drawn. As a rule of thumb, most lenders assess roughly 3% of your total credit limit per month as a notional expense, regardless of your actual balance.

In practical terms, a $20,000 credit limit can reduce your borrowing capacity by somewhere in the order of $80,000, and as a broader guide, your borrowing power can fall by roughly five to six times your combined credit card limits. It doesn’t matter that the card sits unused in a drawer. From a lender’s perspective, you could draw on the full limit tomorrow, so they assess your application as though you might.

This is why two borrowers with identical incomes and no credit card debt can be offered very different loan amounts, simply because one has a higher credit limit sitting in the background.

Why Reduced Credit Card Use Can Help Your Application

  • A safer profile: The less debt (or potential debt) you’re carrying, the less risky you appear to a lender. Lower credit limits and fewer cards generally signal a more conservative, lower-risk borrower.
  • More borrowing power: Because lenders factor in your full credit limit rather than your balance, closing unused cards or reducing your limits can free up genuine borrowing capacity, sometimes by tens of thousands of dollars.
  • Easier to manage: With fewer cards and lower limits, it’s simpler to keep track of repayments, avoid missed payments, and present a clean, well-organised application.

Combined, these factors can be the difference between a loan being approved at the amount you need, or falling short.

Practical Steps Before You Apply

If you’re planning to apply for a home loan in the next few months, it’s worth reviewing your credit cards well ahead of time:

  • Close cards you don’t use: If you’re not using a card, closing it removes its limit from your serviceability assessment entirely.
  • Reduce limits on cards you keep: You don’t have to close a card to benefit; many providers will lower your limit on request.
  • Pay down existing balances: Beyond the limit itself, any outstanding balance adds to the picture lenders build of your overall finances.
  • Hold off on new credit: Applying for a new card, increasing a limit, or taking out Buy Now Pay Later finance shortly before a home loan application can work against you.
  • Get a pre-assessment: A broker can review your current credit card position and give you a realistic picture of your borrowing capacity before you start house-hunting.

Timing matters, as most of these changes take a few weeks to be reflected with your credit provider and on your credit file, so it pays to start the process well before you plan to apply.

What This Means for Mandurah and WA Home Buyers

With borrowing capacity already a moving target as interest rates and lending rules shift, every lever you can pull matters, and your credit cards are one of the more straightforward ones to manage yourself.

Read more: How Interest Rate Changes Are Reshaping Australian Borrowing Power

If you’re carrying credit card debt alongside other commitments, it may also be worth looking at whether consolidating your debts into a single, lower repayment could strengthen your position before you apply.

As your local Mandurah mortgage broker, we look at your full financial picture, including your credit cards, and help you understand what different lenders will actually offer, since assessment criteria can vary significantly from one lender to the next.

Contact Peel Finance Brokers to discuss how managing your credit cards could strengthen your next home loan application.

Frequently Asked Questions

Does having a credit card affect my home loan application even if I don’t owe anything on it?

Yes. Most lenders assess your full credit limit, not your outstanding balance, as a notional monthly expense. A card with a zero balance can still reduce your borrowing capacity.

Should I close my credit cards before applying for a home loan?

Closing unused cards can help free up borrowing capacity, but this depends on your circumstances. It’s worth discussing your situation with a broker before making changes, particularly if a card is linked to other accounts or benefits you rely on.

How much does a credit card limit reduce my borrowing power?

This varies by lender, but as a general guide, a $20,000 limit can reduce borrowing capacity by roughly $80,000, and total borrowing power can fall by around five to six times your combined credit limits.

How long before I should review my credit cards before applying for a loan?

Ideally, review and adjust your credit card limits at least a few weeks to a couple of months before applying, so any changes have time to be reflected with your provider and on your credit file.

Will reducing my credit card limit hurt my credit score?

It can have a minor, short-term impact in some cases, but for most borrowers the improvement in borrowing capacity outweighs this. A broker can help you weigh up the best approach for your situation.

This information is general in nature and doesn’t take into account your personal financial situation or needs. It isn’t intended as financial advice, and you should consider whether it’s appropriate for your circumstances before acting on it. Lending criteria, assessment methods and figures vary between lenders and may change over time. Speak to one of our brokers for guidance tailored to your situation.

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