Should I close the account after paying the credit card or lower my credit limit

Discussion in 'Loans & Mortgage Brokers' started by Bonzo, 16th Jul, 2019.

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  1. Bonzo

    Bonzo Active Member

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    Hi guys,

    I had talked to a mortgage broker on a chance meeting asked him how to position myself better for a home loan. I told him I had few credit card loans. He said banks do not like credit card loans so he suggested I take up a personal loan and clear the loan on the credit card. He suggested I should keep $5000 limit on my credit card.

    I was wondering why he said to keep 5k in credit card limit.

    My question: What is the drawback of completely clearing the credit card and closing the account for home loan purposes.

    Thanks
     
  2. Morgs

    Morgs Well-Known Member Business Member

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    Lenders base your borrowing capacity on the limit of the card - not the balance. Clearing the card and closing the account will allow you more borrowing capacity.

    Why a personal loan though? Again this will knock down borrowing capacity. Presumably you'll have cash for a deposit so might pay to start there to knock down existing debt if borrowing capacity is the issue?
     
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  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    not enough data really............

    sometimes closing off cards can hurt your score

    ta

    rolf
     
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  4. Empire

    Empire Well-Known Member

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    Hurt your score but increase your credit limit ye?
     
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  5. Beano

    Beano Well-Known Member

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    Do you actually owe anything on your credit card after the due date or do you pay the credit card balance off in full ?
     
  6. Bonzo

    Bonzo Active Member

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    Me and my wife will have cash deposit of $45K in about 6 months time. The money is not accessible at the moment.

    I have a personal loan of $18k, my wife has three different credit card loans with combined total of $25k. She took out her first credit card 10 years ago. Other credit card are 4 years old.

    I have taxable income of $40k. I am a sole trader working as an Uber driver. My wife has taxable income of $64k (PAYG).

    We are trying to get a personal loan and clearing the credit card loan with the new personal loan. We are planning to minimise new personal loan by 12k in 6 months time. My wife’s remaining personal loan would be 12k by then. We are hoping we can use $45k as the deposit for a home loan with above scenario.

    If we cannot borrow with our situation then we will pay off our personal loans and start saving same more money.

    Should I completely payoff the credit card and close the account or keep $5k card limit in the oldest card?

    We are planning to have multiple properties down the line. Should I be looking for a full time job to be able to get more loans. I have a feeling my income might be an hindrance in us getting the very first home loan.

    We are new to the game and very confused

    Your feedback would be highly appreciated

    Thank you very much
     
  7. Bonzo

    Bonzo Active Member

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    We owe about $25k after the due date :[
     
  8. Beano

    Beano Well-Known Member

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    Unless you are on a super low interest rate
    1: the first recommended advice is to fully repay this from your saving.
    2: The second advice to take is ALWAYS pay your credit card off in FULL by the due date.
    3: the third is post , listen and discuss your property strategy on this forum.
     
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  9. EN710

    EN710 Well-Known Member

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    :[ I personally would address this and get it down first before thinking about house.
     
  10. Trainee

    Trainee Well-Known Member

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    Maximising income, lowering high interest debt and max saving should be your biggest goals here. If you could get a full time job with higher pay, why havent you until now?
     
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  11. EN710

    EN710 Well-Known Member

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    At the risk of being patronising, I'd like to suggest to have a read on the likes of Barefoot Investor if you haven't. It sounds like you are trying to juggle several things at once and getting yourself confused.
     
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  12. Bonzo

    Bonzo Active Member

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    I prefer flexibility Uber provides and I am learning how to be your own boss at the moment. I can earn more with Uber going forward but for the purpose of getting the home loan it looks bad on paper since we need two years of annual tax return. I will look for a full time job and do Uber on the side.
     
  13. Bonzo

    Bonzo Active Member

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    I have read the book and recommend it to others as well. You are right I am trying to do a lot with very little money.
     
  14. Trainee

    Trainee Well-Known Member

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    Flexibility costs. And dont just quote the glossy literature about being your own boss. You need to think for yourself. Being your own boss is just a job unless you can make money from other peoples labour. Can you do that?

    You have to ask what the chances are of being one of the top uber drivers who actually make decent money, compared to just an average job that would pay just as much but you have fixed hours?

    Look your already in a hole here. Your financial habits are bad given that debt. You need to get out of it asap.
     
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  15. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    Frankly you're making $40k on Uber. This is a very low income and it's going to hurt how much you can borrow.

    You might argue that a lot of this is vehicle depreciation that you can now claim so it's not real money. In reality in a couple of years you're going to likely take another personal loan to replace the vehicle to keep making money.

    Uber makes financial sense for people who are going from A to B to take someone else along and share the costs. As an alternate taxi business it's really just getting yourself a low paying, variable income job. It's not a business, in this regard I think what they're telling you is a bit of a scam.

    Sorry to be harsh, but you've got a low income and are carrying a lot of personal debt. Get a regular full time job. Divert the extra income into paying off the personal debt. If you want a little extra, then do Uber on Saturday nights (or whenever it's most lucrative) on the side.
     
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  16. Bonzo

    Bonzo Active Member

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    Thanks for the advice. I will find a full time job.

    In the mean time we had applied for the personal loan to clear off the credit card loan just to streamline all the debts and to get better interest rate. It has been approved at 7.43%. Our credit card has interest rate of 13.99% and I am planning to close all the credit card. How bad will it hurt my credit score?
     
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  17. Trainee

    Trainee Well-Known Member

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    What will stop you from running up debts again after the payments decrease?
     
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  18. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    Not really possible to answer this. Probably somewhere between 'not at all' and 'just a little'. I wouldn't get too worried about it.

    A personal loan usually has less effect on your borrowing power than a credit card, but make sure you close the credit card and don't get another one, or this is a wasted exercise. It would also help you to focus on paying off the personal loan as quickly as possible.
     
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  19. Bonzo

    Bonzo Active Member

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    Thanks will do that
     
  20. Empire

    Empire Well-Known Member

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    1) Pay off your credit card
    2) pay off your personal loan
    3) build up your savings

    Somewhere in there you need a full time job with uber part time.
     
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