Banks attitudes to credit cards

[Gordon Farkus]

There's a question from a reader in today's Money section of The Age that asks whether they should cancel/reduce the limits of all of their credit cards (5 cards, each currently with large credit limits but all with zero balances) to maximise their chances of a successful loan application.

Noel Whittaker responds that "To the best of my knowledge there is no requirement to disclose the existence of credit cards that have a zero balance."

Is this correct? I thought banks when assessing servicability assume the credit limit on a card as being fully used (probably plus a bit more): even if the balance is $nil, there's the potential for money to be spent on the card at the expense of servicing the borrowings.

 

[Luv2Travel]

Is this correct? I thought banks when assessing servicability assume the credit limit on a card as being fully used (probably plus a bit more): even if the balance is $nil, there's the potential for money to be spent on the card at the expense of servicing the borrowings.

That is my understanding, but it's interesting what that guy advises. A friend of mine was having trouble getting finance who has a few credit cards with all high limits, but always pays them out at the end of the month, so it's really only for emergency and convenience. She was told that the banks don't know about your credit cards unless you disclose them (unless of course the cards are held with the same bank) and so she was just not going to disclose them. I'm not sure if that then counts as fraud, I'd be too scared to do that, but perhaps that's where he's coming from (although doubt he'd be advising something illegal). If the banks know about it, they use it, but if they don't know about it... Interested to hear from those in the business on this. I never like the fact they take my card into account, as it's not really a debt in my eyes, I just live off it and pay my living expenses in one go at the end of the month to the card.

 

[wobbycarly]

Completely agree with you both.

My high credit limit on the AMEX has gotten queries every time we've sourced finance. So I get a stat dec stating that it's only used for reimbursable work expenses (which it is) and that helps.

Haven't paid a cent in interest on the Visa NOR the AMEX for-EVah, but the loan apps still include the full credit limit as if it's drawn.

The pinnacle of irony... ANZ send me out a "increase your limit and get a Platinum card at no extra charge" letter. So I go for it. Next loan application (with ANZ), they want to knock us back coz our CC limits are too high!

Drop the limit down, and go back to Gold (don't really notice any difference, anyway) and loan goes through. Few weeks later - pre-approved credit limit increase in the mail.

WFT?

 

[Perp]

Noel Whittaker responds that "To the best of my knowledge there is no requirement to disclose the existence of credit cards that have a zero balance."

He obviously looked into this, thoroughly - NOT! One call to any mortgage broker or lender would have given him a different answer.

 

[radelaide]

As far as I am aware some banks look at your credit limit as being total debt. For example - they don't want you to buy a house then put new furniture on the credit card and max out the debt. Some banks do this and some don't so best to talk to your particular bank. What I dont understand is why someone would need 5 credit cards, and secondly if they are all at $0 - well just get rid of some!

 

[wobbycarly]

As far as I am aware some banks look at your credit limit as being total debt. For example - they don't want you to buy a house then put new furniture on the credit card and max out the debt. Some banks do this and some don't so best to talk to your particular bank. What I dont understand is why someone would need 5 credit cards, and secondly if they are all at $0 - well just get rid of some!

But I need to pay off the Visa with the Mastercard, which I can do as soon as my balance transfer Citibank card gets here...

 

[Rangi]

Three options for Whittaker,

Either he doesn't have any c cards.
Doesn't borrow any money.
Or has previously not included all of the info....

Basically most/some lenders will place a $30 weighting on every $1000 of LIMIT. Irrespective of the actual balance.

Therefore if you have a $10k card, this reduces monthly servicing by $300. Also, with the new NCCP laws lender have to be very careful that all limits are included, because these can be used at any time, sort of like a line of credit.

 

[Rolf Latham]

Noel is only human

I suppose this is valuable feedback to make sure that one seek personal and specific advice.

Such urban myths abound Im afraid, and sometimes the amount of journalistic research or source investigation is very lacking

ta
rolf

 

[Bradsdad]

I must make sure I grab a copy of the Age in future. It really sounds like it's a great read.

On a serious note, most lenders will take the full balance but a limited few such as ANZ will disregard them should you be able to provide statements showing cards have been cleared in full for the past 3 months.

Why anyone needs 5 cards with such high limits is beyond me. I guess it makes it much more fun should they pocket your wallet though

 

[ozmale42]

On my last loan approval the fact I have 3 cards with a combined limit of $120k was not an issue for the lender (Westpac). Admittedly they are all at NIL balances apart from my AMEX which I use for day to day spending and pay it off monthly.

 

[Rolf Latham]

On my last loan approval the fact I have 3 cards with a combined limit of $120k was not an issue for the lender (Westpac). Admittedly they are all at NIL balances apart from my AMEX which I use for day to day spending and pay it off monthly.

well you obviously DONT have a serviceability problem then

Thats 3600 a month in loan repayment equivalent

ta
rolf

 

[ozmale42]

well you obviously DONT have a serviceability problem then

Thats 3600 a month in loan repayment equivalent

ta
rolf

Sure but having said that they wanted to see evidence of the NIL balances. I can see why banks would have an issue. All it takes is for a change in spending habits by an individual resulting in maxing out their cards and then having problems servicing their mortgage(s)

 

[Luv2Travel]

I can see why banks would have an issue. All it takes is for a change in spending habits by an individual resulting in maxing out their cards and then having problems servicing their mortgage(s)

True, but pretty much anyone with a job can go and get finance after they've got the mortgage. Surely someone who can show a history of 10 years of paying the credit card balance each month would be a more reliable indicator of financial stability (that's my position, but they still want to know about my credit card and include it as though it was maxed out). Nope, gotta tick the bank boxes, and common sense doesn't come into it.

 

[Rolf Latham]

Hey Biggles

10 years of sterling service dont count for much : (

But the dormant savings account which is now overdrawn due to fees and has been for 3 mths will kill one'scredit score and with some lenders, that makes one similar to

My latest fight is an ANZ client of 8 years with impeccabel account history...........os so she thought. The ANZ score card system rated her as a Super fail high risk and no one could be bothered to dig deeper and see why that might be the case.

After much digging around and a sympathetic ear from a fellow human being, we worked put that for the last 5 years her delinquincy rates was 8 days plus EVERY month.................and obviously you dont want to lend money to that sort of risk

Further investigation shows that ANZ is drawing her payment 8 to 11 days late EVERY month from her flush offset account.

We are still fighting .............................

another classic case of banksbehavingbadly

ta
rolf

 

[RedCat]

I had 3 Visa cards, 3 Amex cards and 2 Mastercards and yes - I DID and still DO need them all as each is used for a very particular purpose.

The combined limit on these cards was $250K and to resolve the issue with the bank, rather than cancel them I reduced all the limits - some as low as $2K and two at $20K - I think the combined total now is around $60K. I needed to retain the unique cards and found this was the best way around it considering I pay them off each month anyway. Granted it means I sometimes have to whack cash injections into them if the spend will be higher than $2K a month on that particular card, but it means I'll get my future loans through.

FWIW I only had to email the bank and tell them I was doing this to resolve the issue when the recent loans were approved and since then I've been reducing them so it's not a pain next time I get a loan - hope this helps.