Do you really need a credit card history before applying for a home loan?

RNZ News

13-05-2025

Credit card spending is unlikely to affect your home loan application, experts say.
Photo:
123RF
By
Anna Chisholm,
ABC
Have you ever been told that you'll need good credit card history to successfully apply for a home loan?
It's the kind of unsolicited advice that pops up at family lunches and catch-ups with friends.
But, according to financial educator Natasha Janssens and independent mortgage broker Craig Morgan it is more complicated than that.
Janssens is a former financial planner and mortgage broker who lives in Canberra on the land of the Ngunnnawal people.
She says the idea that you need a credit card to secure a mortgage comes from the United States.
"In Australia, we really don't need a credit card in order to get a home loan," she says.
Morgan, who lives in regional New South Wales, on the land of the Birpai people, says it is "a bit of an urban myth" that you need a proven track record of borrowing and repaying via a credit card to be a successful home loan applicant.
"If you've got a really good solid credit history it probably counts for you. It certainly doesn't count against you," he says.
But he says: "Whether you have or haven't had a credit card in your history is still largely irrelevant".
For other loan types, your credit history may be more of a factor, but when applying for a home loan, your employment status and spending patterns could have more sway.
If you're planning to buy a home, Janssens says, "the first thing is to check whether or not you actually have a credit score". You may have one without knowing.
You can check your credit score online for free by contacting an online credit score provider, she says.
The MoneySmart website recommends avoiding any provider that has a charge or asks for payment details.
"Typically, you agree to their privacy policy when you sign up. That lets them use your personal information for marketing. But you can opt out of this after you sign up," MoneySmart says.
It also states that a copy of your credit report can be requested every three months for free and recommends getting a copy at least once a year.
"(A credit report) includes things like your credit rating, the credit products you hold, and your repayment history."
Morgan says credit reporting agencies are likely to have a report for you if "you've had some component of credit, that could be something as simple as a mobile phone".
Morgan says having a "clean" credit history with a good saving record can mean more to lenders.
In the absence of credit history, Janssens says, the lender (usually a bank) would assess someone's ability to repay a mortgage in other ways, such as a consistent savings, their rental history, and paying utility bills on time.
She says lenders are looking for evidence of reliability and consistency, which goes to an applicant's character.
If you don't have a credit score, Janssens recommends talking to a lender or mortgage broker directly before applying online. As you may get automatically declined online by some lenders.
Morgan says credit cards are "always going to count against you" when it comes to your borrowing capacity.
If you're preparing to buy a house and want to borrow as much as you can a mortgage broker would likely advise you to get rid of your credit cards anyway, he says.
This is because lenders are required to assume any credit cards are "maxed out" and a lender has to consider the minimum monthly repayments required when calculating how much you will be able to pay back and how much you can borrow initially.
Janssens says "reducing your borrowing capacity" is one of "a couple of downsides" that come with credit cards.
Janssens suggests spending conservatively in the six months before applying for a mortgage.
"We tend to spend more when we can afford to spend," she says, but "it's a good idea to practice spending assuming you have a mortgage."
Also make all repayments on time, as lenders will "be on the lookout for things that might suggest that you could have difficulties repaying".
This includes pay day loans, accounts with pay now buy later services, and gambling.
Morgan says to expect lenders to go through your bank statements and credit card history (if you have any) and don't go on a spending spree in the months prior.
Sometimes people who have been diligently saving "have that one last hurrah".
"What we see is this really horrific spending history in the three months leading up to the loan application."
It might not cost you the loan, but it's not putting yourself in the strongest position either, he says.
This article contains general information only. You should consider obtaining independent professional advice in relation to your particular circumstances.
- ABC