To lenders, you can look as good–or as bad–as your credit card limit, not just how much you save.
The use of buy-now-pay-later services has surged in recent years, more than doubling between 2018 and 2021, according to Roy Morgan. Meanwhile, credit cards are also used by a lot of Australians.
While both buy-now-pay-later services (BNPL) and credit cards have pros and cons, do you realise that using them can affect your mortgage borrowing power?
How?
If you regularly use BNPL, it might send a message to lenders that you’re struggling to manage your finances. This will see them questioning how much they could safely afford to loan you without you struggling to make repayments.
If you have a credit card, lenders *assume* you’re going to spend up to your limit each month. Meaning, if your limit is $10,000, lenders will assume you’ll essentially ‘borrow’ $10,000 each month.
That credit limit (whether you spend the money or not) will give the impression you have more debt, and therefore reduce how much money banks are willing to loan you.
And if you miss BNPL or credit card repayments, lenders will be even more concerned.
A tip from a mortgage broker to you, if you want to maximise your borrowing power you should:
· Reduce or eliminate your use of BNPL services
· Lower your credit card limit or cancel your card
· Make all your repayments on time
Do you want to find out more about how lenders profile you and your mortgage eligibility? Contact us today and we can assess your borrowing power based on your ALL your assets, negative and positive!