• Aron Cardona

How to Increase Your Borrowing Power

A higher borrowing power may be the difference between your dream home or a tin shed. Here are some tips on how to increase your borrowing power.

Lenders and banks calculate your borrowing power based on how much money your left with AFTER your pay enters your account and your monthly expenses are paid. This is called net income.

The easiest way to increase your net income is to get a pay rise or a higher salary which isn't likely unless you're good mates with your boss, so the most accessible way to increase your net income is by reducing your current debts.

Reduce your Credit Card limit

Generally speaking, banks will reduce your borrowing power by 3-4x your credit card limit. For example, if you have a credit card limit of $15,000 your borrowing power is reduced by $45,000 - $60,000. We're not talking pocket money here!

To counter this, reduce your credit card to a more suitable limit. Perhaps a limit of $3,000 will cover your monthly requirements. By reducing a $15,000 limit to $3,000, you've increased your borrowing power by over $40,000 - $50,000 in most cases.

Close or reduce your 'bad debt'

Bad debt can be personal loans to pay for holidays, weddings, furniture, TV's, computers. To maximise your borrowing power, you should avoid bad debt at all costs.

Increase your debt loan term

This tip is for anyone who CAN'T avoid, reduce or close their bad debt. Increasing your loan term will reduce your repayments as they will spreaded over a longer duration. For example, the same personal loan over 3 years will require higher repayments opposed to paying the loan over 5 years.

Although bad debt should be avoided at all costs, this method will reduce your monthly expenses (as repayments are lower) thus increasing your borrowing power.

Calculate your borrowing power using our calculator!

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