My Experience with The Impact of My Credit Card Limit on Loan Borrowing Capacity

CheapskateQueen on 07/05/2016 - 09:45

Since we have a lot of loan and credit card questions/concerns on here I thought I'd provide some interesting info that may help someone.

I'm currently on the market to borrow money. In dealing with my lender in working out my total borrowing capacity for the new loan they factored my salary + rents + credit card limit (of course).

I have no debts on my CC and pay closing balance in full. Although having nil $$ owing is irrelevant in the equation. I currently have $18,000 in CC limit.

What I found interesting was the impact of that $18,000 on my borrowing capacity which changed things by $100,000!!! I assumed it would factor double, but apparently it's a lot more!

Reducing my limit by $8,000 (to 10K) increased my borrowing by $50,000 and reducing it to nil increased by $100k!

Anyways, thought that was interesting to share because I was shocked by the fact it impacted by 5 times my limit!

Financial

Comments

  • slknv on 07/05/2016 - 10:38

    No surprise there. Have a look at your credit card interest rate(s) which will be far beyond whatever loan you're applying for, unless you're also getting a loan at 20%+. When I was applying for a home loan, I got rid of all my credit cards except for two 6 month prior to applying for the loan. All my cards were paid off in full each month too.

  • lovepeoplenotmoney on 07/05/2016 - 10:48

    Good information, thank you very much. Would you also inform us how the borrowing capacity was calculated/correlated to your credit card limit?

    • CheapskateQueen on 17/05/2016 - 12:15

      not sure what you're looking for other than what's there?

      my borrowing capacity was reduced by $100K as a result of an $18K CC limit. It was a factor of 5.5-6 times my credit limit

  • Ughhh on 07/05/2016 - 21:51

    Had a similar experience when going for a pre-approval, except my CC limit at the time was $20k.

  • tooblue on 17/05/2016 - 11:21

    No surprise here if you understand how to calculate the loan repayments. $18,000 credit limit at 2% minimum repayment means you have $360 obligation every month that you are not able to use this to pay off the potential loan. A $70,000 30 year principle and interest home loan at 5% pa will need $375 monthly repayment. So if you are able to contribute this $360 to the potential loan, of course you will be able to borrow roughly under $70,000 more.

    • CheapskateQueen on 17/05/2016 - 12:13

      … sure what you say makes sense but 70K is not 5.5-6 times the credit limit

      that's the point. 5.5-6 x the limit is huge.

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