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The Real Cost of Credit Cards on Your Mortgage Capacity

Date Published: 28 March 2024

New Zealanders are no strangers to credit cards, but while these cards are a mainstay in many wallets, they can also be a stumbling block on the path to home ownership. Let’s peel back the layers to better understand how credit card usage affects your mortgage potential.

The Hidden Price Tag of Credit Cards

Credit cards, while convenient, carry a high-interest rate, often around 20% p.a., that can quickly inflate once any interest-free period ends. The concerning part about this is not only the amount you pay in interest but also the effect it can have on your mortgage lending potential.

The Significance of Minimum Payments

Paying the minimum amount on your credit card is important to keep your credit file clean. The minimum amount you are required to pay on your credit card is typically 2-5% of the closing amount from the previous period.  But when banks assess your mortgage, they must assume that you will max out your credit card.  So someone with $1,000 owing on their credit card may be required to pay $50 the next month, but if their limit is $10,000, the bank will assess the minimum payment as $500 when reviewing a mortgage application.

Strategies to Improve Your Borrowing Power

Refinancing existing debt, such as high-interest credit cards, into a mortgage with a lower rate seems like an obvious solution. But pause and consider the length of the new loan term. Extending short-term debts over the life of a long-term mortgage can end up costing more due to the extended period of interest payments.

When you refinance short-term debt, think carefully about the term of the new loan. A high-interest credit card paid over five years might seem daunting, but when transferred to a low-interest home loan paid over 30 years, the total interest paid could be higher in the long term. Always consider the length of the term when refinancing short term debt to your mortgage.

The Bigger Picture: Fiscal Health Beyond Your Credit Cards

Your financial well-being extends beyond managing debt. A comprehensive view of your finances includes a thorough budget, which can enhance your borrowing capacity when applying for a mortgage. In other words, it’s not just the limit on your credit cards, it’s what you are putting on them that makes the difference to your mortgage application as well.

Some Budgeting Tips for a Healthier Financial Future

  • Review your household budget: Look for areas where you can cut down on costs without compromising your lifestyle. We love PocketSmith for this type of thing.
  • Audit your subscriptions: Are you paying for services you no longer use? Cancel any unnecessary subscriptions and save those dollars.
  • Shop smart: When at the supermarket, opt for similar but lower-priced items. Store brands often offer the same quality for a fraction of the cost.
  • Plan your meals: Reduce waste and save money by planning your meals for the week and only buying what’s necessary.
  • Prioritise high-interest debts: Pay off high-interest loans first to reduce the amount you’ll end up paying in interest over time.

A Note for First Home Buyers

It’s especially important for new entrants in the housing market to pay careful attention to credit card debts and limits. Effective management of this debt can mean the difference between loan rejection and approval – and potentially impact the size of the loan you can secure.

Cultivating Prudent Credit Card Use

Adopt better financial habits with these pointers:

  • Exceed the minimum: Always try to pay more than the minimum amount due to chip away at your credit card balance faster.
  • Keep track of interest-free expiry dates: Mark your calendar for when your card’s promotional period ends to avoid surprise interest rates.
  • Examine your credit limit: A lower credit limit keeps your potential debt in check, making you a less risky prospect to mortgage lenders.
  • Monitor your credit score: Regular checks can help you identify mistakes early and ensure your financial health is apt for when you need that mortgage approval.

Savvy Credit Use for Mortgage Success

Understanding and managing the role credit cards play in your financial history is crucial to your mortgage application’s success. By considering how this fits into your overall fiscal responsibility, you’re setting the stage for a smoother path to home ownership.

At Mortgage Lab, we’re committed to guiding and supporting you through each financial milestone. For tailored advice on mortgages and managing your borrowing power, reach out to our team of experienced mortgage advisers. We’re here to help you make the most of your journey to owning a home in New Zealand.


Mortgage Lab’s mission is to be the digital town square for financial decision-makers to gain knowledge about their current and future mortgage. Follow us on Facebook and LinkedIn or subscribe to our newsletter to be notified of our latest articles.

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