New rules will make it harder to get credit cards

If you  applying for a new credit card or plan to raise the credit limit of an existing card to cope with your Christmas spending spree you could be in for a shock.

The screws are being tightened on Australia’s debt obsession.

As of 1 January 2019, new credit card limits will be based on what you can afford to pay off over a three-year period.

Existing card balances will be unaffected.

Lenders currently assess whether you can afford to repay a fixed proportion of your credit limit – typically 3 per cent a month.

The new regulations, announced by ASIC last September, could typically result in maximum credit card limits on new cards being cut in half.

Now as well as considering your income, the three-year period must factor in the card’s fees and the highest applicable interest rate, which is usually the cash advance rate.

It also has to consider the potential costs you’ll face from other cards or loans.

Recently released RBA figures show the number of credit card accounts dropped to 15.97 million in November 2018, making it the lowest level of active accounts since March 2015.

It looks like more Aussies are cutting up their credit cards and using debit cards.

Total credit limits also fell to $151.94 billion in November, down from $152.09 billion in October, despite this being a month out from the busy Christmas shopping period.

Although credit card debt overall has decreased, the 'average' balance per card has increased simply because there are fewer credit card accounts than there were before.

Both the above changes are in line with the new credit card rules which came into play on 1 January 2019, which make it harder for people to get access to credit.

Sally Tindall, research director at RateCity.com.au, said it’s a sign Australian credit cards could be on the decline.

“2019 could be the year that finally bursts the plastic bubble,” she said.

“The government’s new regulations will force new credit card applicants to accept a credit limit they can prove can be repaid within three years. It will also see people rethink the merits of having multiple cards.

“Meanwhile, people applying for home loan in 2019 might choose to cancel their credit card or reduce their limit in order to get their home loan application over the line,” she said.

This new RBA data shows people are also taking their foot off the pedal when it comes to credit card use; putting fewer purchases on the cards, and paying less interest.

Balances accruing interest fell to $31.52 billion in November, which was the lowest level since September 2017.

“This trend is likely to continue as it gets harder to get approved for a credit card and people grow more fed up with the traditional ways to pay.

“Australians are looking for alternatives to the humble credit card as buy-now-pay-later options such as Afterpay and Zip Pay grow in popularity,” she said

About Brett Warren Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.