Should I close unused credit cards before applying for a mortgage?

A zero balance does not mean a zero assessed commitment

A lender may allow for potential borrowing up to your card limit. Under an illustrative monthly factor of 3%, a $20,000 limit creates a $600 monthly assessment commitment even if the statement is paid in full. The factor is adjustable in our calculator and varies by lender.

Worked example: reduce the limit rather than assume closure is needed

Reducing a $20,000 limit to $5,000 cuts that illustrative commitment from $600 to $150. At a 9% assessment rate over 30 years, the $450 monthly difference represents about $55,900 of loan capacity in a simple model. It is not a promised increase in an actual bank assessment.

Closing a useful card is not the only possible change. Ask for the assessment with the existing limit, a reduced limit and a closed account before deciding.

How close to an application can you change it?

The lender may need a closure or limit-reduction confirmation even if the credit report has not updated. Paying a card to zero is different from closing the account. Check what evidence your proposed lender accepts and whether any pending transactions or instalment plans must be resolved.

Keep the deposit test separate

Removing a revolving limit can change serviceability without consuming the deposit, while paying out a car loan or HELP usually uses cash. See HELP versus deposit for that trade-off. Run the borrowing-power comparison using consistent income and expense figures.

Sources and verification

• Moneysmart — Switching home loans
• Moneysmart — Mortgage offset accounts
• APRA — Macroprudential policy settings

General information only. It is not personal financial, tax or legal advice. Finance approval, pricing and structure are subject to lender assessment and your circumstances.