Credit Card Limit
The maximum amount a credit card holder can spend on a card, whether or not the balance is drawn.
In detail
Australian lenders assess credit card commitments based on the limit, not the current balance. APRA prudential guidance APG 223 expects lenders to assess credit card limits as if fully drawn with a realistic repayment, but the specific calculation varies between lenders. Common approaches include applying a notional monthly repayment of around 3 to 3.8 per cent of the limit, or modelling a principal and interest repayment over a set term. A $20,000 limit therefore creates a meaningful monthly commitment even if the card is paid in full every month.
Reducing or closing unused credit card limits is one of the fastest ways to improve serviceability. The improvement is immediate as soon as the lender can see the reduced limit on the credit report. Brokers often recommend clients reduce limits to align with actual usage in the lead up to an application.
Why it matters for brokers
Unused credit card limits silently reduce borrowing capacity. A client with several cards totalling tens of thousands of dollars in unused limits can lose a meaningful amount of serviceability simply because the limits are sitting on the credit file.
Example in practice
A broker reviews a client credit file and finds three credit cards with limits totalling $35,000, all with zero balances. The client reduces each limit to $2,000, removing the unused capacity from the lender serviceability calculation and lifting borrowing capacity at the target lender.
Related terms
Credit Report
A record of a borrower credit history held by Australian credit reporting bodies.
Serviceability
A lender assessment of whether a borrower can meet loan repayments from their income after accounting for expenses, existing debts, and a buffer.
Debt to Income Ratio (DTI)
Total debt divided by gross annual income, used by lenders as a supplementary risk measure alongside serviceability.
Dishonour Fees
Fees charged by a bank when a direct debit or scheduled payment fails because the account has insufficient funds.
Ready to assess faster?
Assess documents for mortgages in minutes, not hours.