Yes, absolutely. Cancelling an unused credit card is one of the fastest and most effective ways to improve your mortgage chances in New Zealand. Even if your card has a zero balance, NZ banks calculate your entire approved credit limit as existing debt. Simply closing a card with a $10,000 limit can instantly increase your home loan borrowing power by up to $40,000 or more.
When preparing to buy a house, most Kiwis focus entirely on saving the biggest possible deposit. While a strong deposit is crucial, your borrowing power—the actual amount the bank is willing to lend you—is dictated by your “servicing ability.”
Under current lending regulations, banks are legally required to assume the worst-case scenario. They do not look at how responsibly you use your credit card today; they look at the maximum amount of financial damage you could do tomorrow if you maxed out every line of credit available to you.
Before you submit your application, you need to ruthlessly audit your wallet. In this guide, we will explain exactly how lenders view your unused plastic, the mathematical formula they use to reduce your mortgage size, and the correct steps to clean up your credit record without accidentally damaging your credit score in the process.
The “Credit Limit” Trap: Why a Zero Balance Isn’t Enough
A common misconception among first-home buyers is that if they pay off their credit card in full every month, the bank will not view it as debt. Unfortunately, in the eyes of a New Zealand mortgage lender, your current balance is almost irrelevant.
Banks are required to assess your application based on your total approved credit limit. If you have a Visa card with a $10,000 limit but a $0 balance, the bank’s mathematical formula assumes that you could, theoretically, walk out tomorrow and spend that entire $10,000 at a high interest rate.
Because they have to factor in the monthly repayments for that hypothetical $10,000 debt, they significantly reduce the amount of your income that is considered “available” to pay a mortgage.
The Multiplier Effect on Your Borrowing Power
As a general rule of thumb in the NZ market, every $1,000 of credit card limit reduces your total mortgage borrowing capacity by roughly $4,000 to $5,000. This means holding onto a “just in case” credit card with a $10,000 limit could be the exact reason your bank refuses to lend you that final $50,000 you need to secure your dream home.
Will Cancelling My Card Hurt My Credit Score?
If you spend time reading personal finance advice online, you will often see people warning that closing a credit card will damage your credit score. This is a myth imported from the United States, where the credit reporting system relies heavily on “credit utilization ratios.”
In New Zealand, the credit reporting agencies (like Centrix and Equifax) look at things differently. Having fewer open credit lines and lower overall limits makes you a safer, less risky borrower. Closing an unused credit card will not negatively impact your ability to get a home loan; in fact, it actively improves your profile by demonstrating responsible financial management.
When is the Best Time to Cancel?
If you are planning to apply for a mortgage, timing is everything. Do not cancel your card the day before you meet with a mortgage broker or bank manager.
Once you call your bank to close an account, it can take up to a month for that closure to be officially reported to the credit bureaus and reflected on your file. To ensure a smooth process, you should aim to cancel any unnecessary credit cards, store cards (like Q Card or Gem Visa), and Buy Now Pay Later accounts at least four to six weeks before you submit your home loan application.
What if I Need a Card for Emergencies?
If you genuinely feel you need a credit card for travel bookings or emergencies, you do not necessarily have to cut it up completely. Instead, call your provider and ask to significantly reduce the limit. Dropping a $15,000 limit down to a modest $2,000 limit still provides a safety net while dramatically boosting your mortgage borrowing power.
Final Verdict: Cut the Plastic to Get the Keys
When you are trying to buy a house in New Zealand, every single dollar of borrowing power counts. While a high-limit credit card might feel like a financial safety net or a status symbol, to a mortgage lender, it is nothing more than a liability waiting to happen.
Your Action Plan: If you are planning to apply for a mortgage within the next three to six months, take a hard look at your wallet. If you have credit cards or store cards you do not use, call the providers today and cancel them completely. If you must keep one for emergencies, ask the bank to reduce your limit to the absolute minimum.
By eliminating these unused credit limits, you present a cleaner, lower-risk profile to the bank, significantly increasing your chances of getting that final “Yes” on your home loan.
Frequently Asked Questions
How long does it take for a cancelled credit card to show on my NZ credit report?
It typically takes between 30 to 45 days for a closed account to be updated by your bank and reflected on your Centrix or Equifax credit report. This is why you must cancel unused cards well before you sit down with a mortgage broker.
Does using Afterpay or Laybuy affect my mortgage application?
Yes, absolutely. Under current NZ lending rules, banks treat Buy Now Pay Later (BNPL) services as lines of credit. Frequent use of Afterpay suggests to lenders that you struggle to manage your regular cash flow, which can negatively impact your servicing assessment.
Should I close my credit card before or after getting mortgage pre-approval?
You should close the card before applying for pre-approval. Your pre-approval amount is calculated based on your financial situation at the time of application. Closing the card beforehand ensures you are offered the maximum possible borrowing amount.
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