Would Multiple Credit Cards That Are Well Managed Enhance or Reduce Credit Score?

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  tomsco on 20/06/2016 - 12:26

  I'd imagine they would look at any defaults and the amount of outstanding credit you have.

  So would imagine it would be better to have less credit.

  Banks see the $10,000 limit as a risk, even though you may consistently pay it off on time.

  Past history will mean nothing to them if that credit facility is available to run up and put you at risk of default.

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  CyberMurning on 20/06/2016 - 12:26

  +1

  Few banks and mortgage brokers advised me, they always have bad effects ie reducing borrowing power,GREATLY.

  means, if you have $10,000 cc limit, it is actually reduced your borrowing power by MUCH MORE THAN $10,000

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    megadeth on 21/06/2016 - 19:15

    I just had first hand experience with this,had to reduce my limit by 60,000 to secure a home loan. Credit cards are treated as a 'current' liability as you can draw the money virtually any time. High credit limit greatly reduces your borrowing power. E.g, 2% of 80,000 credit limit is 4,000 monthly repayment. There goes all your salary! So lender will be very skeptical in providing a loan.

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    brainactive on 21/06/2016 - 20:55

    If borrowing power is not an issue, will we be disadvantaged in any other way by having a bunch of credit cards? Can it potentially affect the rate offered?

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  nickyd84 on 20/06/2016 - 12:42

  But what if I brought a $10k limit down to $1k before applying, or cancelling the card all together?

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    naritas on 20/06/2016 - 13:16

    +1

    Any applications for credit in the 12 months prior to a mortgage application are likely to have a net negative effect on your credit score. That being said, it's not all doom and gloom. If you have a high score (i.e. 1000+), an application for a credit card or cards is not likely to be fatal to your chances of getting mortgage approval.

    In terms of what you can do to maximise your credit score and/or chances of mortgage approval:
    1. Don't move house (multiple changes of registered address lowers your credit score).
    2. Try to remain in the same job (demonstrating consistent employment improves credit score).
    3. Increase your savings (net assets vs age is often a part of the scoring process).
    4. Reduce unsecured/high interest debt and/or credit card limits (this will improve your debt servicing capability in the eye's of the lender).

    Hope this helps.

    • 

      dasher86 on 20/06/2016 - 13:26

      you have a high score (i.e. 1000+), an application for a credit card or cards is not likely to be fatal to your chances of getting mortgage approval.
      What credit scores are you quoting?
      i get my credit score based on experian and it only goes up to 1000.
      In saying that i managed to secure a home loan with a 'okay' rating.

      • 

        naritas on 20/06/2016 - 13:32

        What credit scores are you quoting?

        VedaScore.

        In saying that i managed to secure a home loan with a 'okay' rating.

        A middle of the range score is sufficient to qualify for the majority of mortgage lenders. Naturally, some lenders have more stringent policy than others, so our general thought on the matter is to check one's score before applying for credit. If you're sitting at mid-score range (or lower) you probably ought not make multiple credit card enquiries like the OP is proposing. If you're sitting in the high-score range then multiple credit card applications won't necessarily stop you from getting approved for a mortgage. To be clear, they're unlikely to help - but they ought not stop you in your tracks :)

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  nickyd84 on 20/06/2016 - 13:48

  Yeah I did a check and came in at 'Good', around 650 I think. I'm turning in to a flyer points junkee, which is the reason why I'd want to take on another card, purely for that reason.

  then started reading up on it, and many sources say that if you had for example 20 credit cards and you paid all of them off on time then you can in the long run improve your credit rating rather than damage. I understand you wouldn't want 20 cards when going in to a mortgage application!

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  ProjectZero on 20/06/2016 - 15:02

  I'm pretty sure lenders see CC as a liability no matter how well the cards are managed as it is a potential to be that much more in debt. Probably talk to a bank regarding it?

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    nickyd84 on 20/06/2016 - 15:16

    Yeah they do. I just wondered if you cancel or bring the limit down right before applying if you'd get away with it

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      ProjectZero on 20/06/2016 - 15:18

      Well, when i applied for my loan, I cancelled my extra CC right away and the CC was then not taken into consideration. Could be a case by case tho…

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        naritas on 20/06/2016 - 15:38

        It's probably worth noting that there are two aspects to credit card limits here:
        1. Their impact on debt servicing.
        2. Their impact on credit score.

        A credit card limit will only impact your debt servicing capabilities in the eyes of a mortgage lender if the limit is available at the time of mortgage settlement i.e. if you cancel or reduce the limit prior to loan application you will be able to avoid issues to do with a low borrowing capacity stemming from having large credit card limits.

        This is distinct from point 2, your credit score. Your credit score will not be automatically increased by cancelling credit card limits. Your score will probably take a hit for a period of 12 to 24 months after you've made a credit card application or applications (typically the more applications = the bigger the effect on score). This is not necessarily a major issue if your score is high and financial position is strong but can be an issue if your score is moderate (or lower). Regardless, a credit card application or applications are not likely to be helpful to your goal of securing a fast & well priced mortgage approval in the coming year.

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  Fexofenadine on 20/06/2016 - 16:50

  An alternative (US) perspective I came across recently:

  "When you apply for a new credit card, the downside effect is that your credit gets hit with an inquiry, and the inquiry knocks down your score two or three points, and that lasts for up to twenty-four months. But what people don't realize is that every other aspect of your credit score improves when you get more cards. Last year, I applied for about fifty cards, and my score went up during that time. The reason is the much more important metric is whether you're paying everything on time."

  http://www.vice.com/read/how-to-travel-the-world-first-class…

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  nickyd84 on 20/06/2016 - 17:18

  That's actually what I read that got me thinking! I don't think it's the same here in Aus though from the sounds of it?

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    Fexofenadine on 21/06/2016 - 09:00

    That was my first thought, but surely it can't be that different between our countries? Hopefully someone who works for Veda or similar is on here and can answer :P

    • 

      nickyd84 on 21/06/2016 - 09:08

      I'm assuming that these point hackers who spend all year flying around 1st class don't have the need or want to buy a house!

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  Bab on 21/06/2016 - 07:26

  I applied for a cc with $6000 limit that reduced almost 93 points from my credit history. I don't think cancelling a card will improve your score. It may improve your birrowing power. The credit history is updated every 5 yrs meaning what I lose today for a cc will come back to me after 5 yrs. also the points are updated monthly based on vaious factors.