How to increase your borrowing capacity. 8 Strategies

Rising interest rates and cost-of-living pressure are making it harder for many Australians to access credit. If you’ve recently applied for a loan and got less than you expected or were declined, you’re not alone. But there are safe steps you can take to improve your borrowing options.

Borrowing capacity is how much a lender might let you borrow based on your ability to repay. It depends on your income, debts, spending, credit history, and which lender you choose. Lenders differ in how strictly they assess things. What one accepts, another might not.

At Credit24, we understand that everyone’s financial situation is different. You can apply for a personal loan that may support your financial situation. If approved, you may use credit to clear debt, manage an emergency, or give yourself more financial breathing room.

Learn more about Credit24

What is borrowing capacity and how is it calculated?

Borrowing capacity (or serviceability) is the maximum loan amount a lender might approve based on your financial situation. They check that you are likely to repay without being stretched too thin.

Key things lenders look at:

• Income: salary or wages, bonuses, commission, overtime, government payments, rental income.
• Expenses: living costs—rent or mortgage, utilities, transport, food, insurance, schooling, subscriptions.
• Existing debts: other loans, credit cards, car finance, HECS-HELP or other government study debts, buy-now-pay-later (BNPL).
• Credit history: past missed payments, defaults or judgments, and how well you manage current credit.
• Other obligations: child support, alimony, regular large outgoings.
  

Lenders often run a stress test. They assume interest rates are higher than current rates to check you can still make payments if rates go up. They usually add a buffer of around +3% onto the interest rate when doing this, in line with responsible lending expectations.

Your debt-to-income (DTI) ratio is also a major factor — it’s how much debt you have compared to your income. A lower DTI generally helps; a higher DTI can reduce your borrowing capacity.

8 ways to increase your borrowing capacity

1. Increase your income

More income can improve how much you may be eligible to borrow.

• Ask for a raise or promotion at work.
• Take on extra hours or a second job.
• Use your skills or hobbies to earn extra (freelancing, tutoring, selling crafts or digital services).
• Include regular bonuses, commission or allowances in your application if you can prove they’re consistent — some lenders may count them.
  

2. Reduce your existing debts

High debt levels are one of the main reasons borrowing power gets cut. Even if you’re paying everything on time, lenders still count those repayments against what you can afford.

• Pay down credit card balances. Lenders often assume you’ll use the full limit and only make minimum repayments.
• Consolidate or clear personal loans. Fixed repayments on personal and car loans reduce your available capacity.
• Consider debt consolidation. Rolling multiple debts into one loan with a lower monthly repayment can free up room.
• Watch HECS-HELP. It doesn’t charge interest, but compulsory repayments still count as an expense.
  

3. Cut or reduce credit limits you don’t need

Credit cards can hurt borrowing power even if you don’t use them.

Lenders:

• Look at your full card limits, not just balances.
• Assume you could use the entire limit at any time.

To improve things, at least a few weeks before applying for a loan:

• Lower your card limits to realistic levels.
• Cancel cards you no longer use.
• If you have multiple cards, consider cutting back to one low-limit card to show control and discipline.
  

4. Cut your living expenses

Most lenders check your average spending over the last 3 months using bank statements. High spending can limit how much you can borrow, even on a good income.

You can:

• Track your spending for at least three months using a budget app or spreadsheet.
• Cut non-essentials like subscriptions, takeaway, entertainment, and impulse shopping.
• Review regular bills like phone, internet, power, insurance, and childcare for savings.
• Show restraint on discretionary big-ticket choices like private school, frequent holidays, or luxury extras in the months before you apply.
  

5. Improve your credit score

Your credit score plays an important role in how much you may be allowed to borrow. A higher score tells lenders you’re responsible and reliable.

Basic steps to improve your score:

• Always pay on time. Bills, loans, and utilities all count.
• Limit credit applications. Too many in a short time can damage your score.
• Don’t overuse credit. Try to use less than 30% of your available limits.
• Close unused accounts. Old cards and store accounts increase your total exposure.
• Check your credit report. Dispute any errors or incorrect listings.
  

6. Save up a bigger deposit

A larger deposit makes your application less risky and reduces the amount you need to borrow.

• Lenders look at your Loan-to-Value Ratio (LVR). The lower the LVR, the better.
• A deposit of 20% or more can help you avoid Lenders Mortgage Insurance (LMI) on a home loan.

To build a bigger deposit:

• Set a clear savings goal and automate regular transfers from your pay.
• Use bonuses, tax refunds, or family gifts to boost savings.
• Look into government assistance like the First Home Super Saver Scheme (for property).
• Show consistent saving behaviour rather than one-off lump sums.
  

7. Use additional income sources like rental income

If you already own an investment property, rental income can support your borrowing power — but lenders usually discount it.

Commonly, they might only count around 80% of your rent to allow for:

• Vacancies
• Maintenance
• Property management fees
• Rates and other property costs

What helps:

• Keep clear records (lease agreements, rental statements, tax returns).
• Improve rental yield where possible (within regulations).
• Choose lenders that treat rental income more favourably.
• Minimise negative gearing impacts where you can.
  

8. Adjust loan structure or use guarantors

If traditional tweaks aren’t enough, there are some more advanced options.

Using a guarantor

A guarantor (often a close family member) supports your loan with their income or assets. This can:

• Increase how much you’re allowed to borrow
• Help you qualify when you otherwise might not

But it carries serious risk: if you can’t repay, your guarantor becomes liable.

To manage this:

• Have a clear written agreement between you and your guarantor.
• Make sure they fully understand their obligations.
• Limit the guarantee to a set amount if possible.

Trust structures

Some people use a discretionary trust when buying investment property. In some circumstances, if the property profit sits in the trust, lenders may not count all of that income against your personal borrowing capacity.

However, trusts are complex and each lender treats them differently. Always seek advice from a qualified accountant or financial adviser before using structures like this.

Why your borrowing power might be low

Common reasons your borrowing capacity may be lower than expected include:

• High debt-to-income ratio
• Irregular or unstable income
• Weak credit history or past defaults
• High living expenses
• Multiple existing credit cards and loans
• Heavy use of BNPL services
• Commitments like novated leases reducing your take-home pay

Understanding which of these applies to you can help you decide what to tackle first.

The role of mortgage brokers in boosting borrowing power

A mortgage broker (or finance broker) can make a big difference if you’re trying to borrow more.

They can:

• Compare options across many lenders
• Tailor your application to highlight strengths
• Suggest lenders more flexible with things like bonus income, rental income or past credit issues

Why choosing the right lender matters:

• Each lender calculates borrowing power differently.
• Some accept a wider range of income types.
• Others are more open to self-employed borrowers, guarantors, or investment properties.

A broker can help match your situation to a lender’s policy, instead of you trying to guess.

Credit24: Simple loan options that may help improve borrowing power

If you're working on improving your borrowing capacity, Credit24 personal loans may be able to help.

You can apply for a loan to:

• Combine multiple debts into one to reduce monthly repayments
• Top up your deposit with fast access to funds (loans up to $10,000 AUD)
• Cover different expenses with flexible use (as long as it’s legal and responsible)

We keep things simple:

• Quick online application
• Fast decisions
• No hidden fees — you’ll always know the costs upfront
• Clear and transparent process

These loans may suit people who are:

• Paying off high-interest debts before applying for a larger loan
• Looking to build a stronger credit history through regular repayments
• Needing a short-term solution while they work on improving borrowing power

Apply now

Frequently Asked Questions

How to increase borrowing capacity quickly?
Focus on paying down high-interest debts, lowering credit card balances, and cutting unnecessary spending. Try to do this consistently for at least three months before applying, as lenders typically look closely at your recent financial behaviour.

How much does a credit card reduce borrowing capacity?
Lenders may reduce your borrowing power by 3 to 5 times your credit card limit — even if the card is paid off or unused — because they assume you might use the full limit and only make minimum repayments.

Why is my borrowing power so low?
It could be due to high debt, unstable income, multiple credit products, a weak credit score, or high living costs. Lenders consider your full financial picture.

Does having a guarantor increase borrowing power?
Yes. A guarantor’s income and assets can help increase how much you’re allowed to borrow. But it’s a serious shared responsibility.

How long does it take to improve borrowing capacity?
Some improvements can show in around 3 months, especially from paying down debt and reducing spending. Bigger changes like improving your credit score or building a larger deposit often take 6–12 months.

Can I increase borrowing power without increasing income?
Yes. Reducing debt, cutting card limits, streamlining expenses, and consolidating loans can all improve serviceability.

Do lenders assess all types of income equally?
No. Full-time salary is usually counted at 100%. Other income types (bonus, overtime, casual work, rental income) are often only partially counted — sometimes around 60–80% — because they can vary.