Borrowing Capacity. What is it? I have a 20% deposit so I can buy that house, right? Not necessarily. Lenders have their own calculations to work out how much they will lend you. Sure, savings helps so don’t go out and blow that deposit on a muscle car or a lavish holiday. You have a good income so that’s all that counts, right? Not totally.
Reduce your credit card limit.
Most people know that reducing their debts can increase their borrowing limit. But did you know that lowering your credit card limit can increase your borrowing capacity?
Lenders don’t like risk
In working out how much you can borrow, lenders determine the likelihood that you might default on the repayments. In performing this risk assessment, they look at a number of factors including your credit history and job security. But something else they consider is your credit card limit.
Reduce your credit limit – raise your borrowing capacity
In the eyes of a lender, the higher your credit card limit, the more chance you have to get into financial difficulty. So, if you want a simple way to increase your borrowing limit, get rid of any surplus cards, and reduce your credit card limit to the absolute minimum you need. There’s more information on how lenders look at credit cards when assessing a loan here. Want to find out your mortgage borrowing capacity? Call me and I’ll do some calculations.