How much does a Credit Card affect your lending?
New Zealanders love credit cards. They’re quick to apply for, often available online in under ten minutes (though we’re definitely not suggesting you try that), and they offer a tempting sense of financial flexibility. But behind that convenience is a significant cost—one that most people don’t realise affects their mortgage eligibility.
Whether your credit card comes with points, cashback, or an interest-free period, it’s important to understand how lenders view them. Even if you don’t carry a balance, the bank will assess your mortgage application assuming you’ll eventually max it out. That assumption can limit your borrowing power more than you think.
Minimum Payments and Credit Reports
Most credit card companies require a minimum monthly payment of around 3% of the balance you owe. So, if your current balance is $5,000, you’ll need to pay around $150 that month to stay in good standing.
And speaking of good standing—if you miss that minimum payment, it doesn’t just result in fees or interest. It also gets recorded on your credit report, which every bank can see. Even one missed payment can work against you in a mortgage application, so keeping on top of these is crucial.
Why the Bank Looks at the Limit, Not the Balance
Here’s where things get more interesting: even though your required payment is based on your balance, the bank doesn’t care about that when assessing your loan application. Instead, they assume the worst-case scenario—that you’ve maxed out your card and now owe the full limit.
Let’s say your card has a limit of $5,000, and you’re only using $500. When it comes time to apply for a mortgage, the bank treats that as a $5,000 debt, not $500. They assume you’re making monthly repayments of $150 (3% of the $5,000), which will reduce the amount they’re willing to lend you for a home loan.
So, How Much Mortgage Does a Credit Card Limit Really Take Away?
It may not seem like much, but it adds up quickly. Take a $10,000 credit card limit, for example. The bank will calculate that you need to make a monthly repayment of around $300 on that card, regardless of your balance. That $300 is then removed from your “available income” when they assess how much mortgage you can afford.
To put that in perspective, $300 per month is roughly what it would cost to service a $43,000 mortgage at the banks’ current test rate of 7.5% (used to ensure you can afford future interest increases). So, just by holding a $10,000 credit card limit, your borrowing power drops by about $43,000—even if your card is paid off in full.
What This Means for First-Home Buyers and Investors
We often see clients with modest balances—say, $3,000 or $4,000—but with card limits as high as $15,000 or $20,000. From a day-to-day perspective, that unused limit might not be a problem. But if you're struggling to borrow enough for your first home, or hitting a ceiling on your next investment property, that unused credit is hurting your application.
By reducing a credit card limit from $20,000 to $5,000, a borrower could potentially increase their mortgage eligibility by more than $65,000, assuming their deposit and other financial factors allow it.
It doesn’t matter whether you're a first-home buyer or a seasoned investor—if you’re facing an income hurdle, trimming unused credit card limits is one of the quickest and easiest fixes to improve your borrowing capacity.
Final Thought
It’s easy to overlook the impact of credit cards when preparing for a mortgage, especially if you pay off your balance every month. But banks aren’t looking at your balance—they’re looking at your limit. And in many cases, simply reducing that limit can significantly increase how much you’re able to borrow.
If you’re planning to apply for a mortgage in the near future, take five minutes to review your credit card limits. Reducing unused credit could be the difference between getting the home you want—or falling just short.