You pay off your credit card every month. You've never paid a cent of interest. So it shouldn't affect your home loan application, right?

Wrong.

This is one of the most common surprises people get when they sit down with a broker for the first time. That trusty credit card sitting in your wallet — the one you barely use, the one with a zero balance — could be silently slashing tens of thousands of dollars from the amount a bank will lend you.

Let me explain exactly how this works, because once you understand it, you'll probably want to make a phone call to your bank today.

Modern Australian home with a for sale sign, representing the property market and borrowing power

Banks Don't Care What You Owe. They Care What You Could Owe.

Here's the thing most people don't realise: when a bank assesses your home loan application, they don't look at your current credit card balance. They look at your credit limit.

Why? Because from the bank's perspective, you could walk out of the branch and immediately max out that card. It doesn't matter that you've never done it. It doesn't matter that you're disciplined with money. The bank sees a $10,000 credit limit and thinks: "This person could owe $10,000 tomorrow."

And it gets worse. They don't just count the limit as a potential debt. They calculate a monthly repayment on the full limit — typically around 3.8% of the total limit per month. That's the number they subtract from your income when working out how much you can borrow.

The Real Cost: A Worked Example

Scenario: Sarah, earning $100,000 per year

With a $15,000 credit card:

The bank assumes a monthly commitment of $15,000 x 3.8% = $570 per month. That's $570 the bank deducts from Sarah's available income — every single month — before calculating how much she can borrow.

At a typical assessment rate (around 6.5%), that $570/month in "phantom repayments" translates to roughly $55,000 to $70,000 less borrowing power.

Without the credit card: Sarah could borrow approximately $620,000.
With the $15,000 card: She can borrow approximately $550,000 to $565,000.

Read that again. Sarah has never paid a cent of interest on her credit card. Her balance is zero. But having the card open costs her up to $70,000 in borrowing capacity. That could be the difference between getting the home she wants and missing out at auction.

The Afterpay and BNPL Trap

Credit cards aren't the only culprit. Buy Now, Pay Later services like Afterpay, Zip, and Humm work the same way.

Every open BNPL account shows up on your credit file. And lenders assess them similarly — they look at your available limit and assume you could use it all.

Here's a rough rule of thumb: every $1,000 in BNPL limit costs you approximately $5,000 in borrowing capacity.

Got a $2,000 Afterpay limit and a $1,500 Zip account? That's $3,500 in BNPL limits, which could reduce your borrowing power by $15,000 to $20,000. Add a credit card on top, and you might be looking at $80,000+ less than you could otherwise borrow.

And the real kicker? Most people forget these accounts even exist.

Person reviewing finances on a laptop, checking credit card statements and borrowing capacity

What To Do About It

The good news is that this is one of the easiest things to fix. Here's your action plan:

1. Cancel credit cards you don't need

If you've got a card "just for emergencies" that you never actually use, close it. Call your bank, ask them to close the account, and get written confirmation. A card with a zero balance that you cancel is gone from the equation entirely.

2. Lower the limit on cards you keep

Maybe you do want to keep one credit card for convenience. Fair enough. But does it need a $20,000 limit? Probably not. Call your bank and ask them to reduce the limit to the minimum you actually need — say, $2,000 or $3,000. You can usually do this over the phone in five minutes.

3. Close ALL Buy Now, Pay Later accounts at least 30 days before applying

Afterpay, Zip, Humm, Latitude Pay — all of them. Close the accounts entirely, not just delete the app. You need the account to actually be closed so it stops appearing as an active liability on your credit file. Give it at least 30 days before your home loan application so the closure has time to update on your credit report.

4. Pull your own credit report

Before you apply for a loan, get a free copy of your credit report from Equifax, Illion, or Experian. You're entitled to a free report once a year. Check it for any accounts you've forgotten about — old store cards, BNPL services, or credit cards you thought you'd closed but didn't.

Quick tip: Closing a credit card does NOT hurt your credit score in Australia. Unlike the US system, the Australian credit reporting model doesn't penalise you for closing unused accounts. So there's genuinely no downside.

The Bigger Picture

Here's the thing — credit cards and BNPL are just one piece of the puzzle. There are dozens of factors that affect your borrowing power, and most people don't know about half of them. The number of dependants you declare. How your employer pays you (salary vs. contract). Whether you have HECS debt. Even which lender you apply with — because different banks calculate things differently.

This is exactly the kind of thing a good broker catches before you apply. A 30-minute conversation can uncover thousands of dollars in borrowing power you didn't know you had.

And it starts with something as simple as cancelling a credit card you forgot you had.