Key points
- Lenders must assess you at your actual rate plus 3 percentage points, an APRA requirement retained through 2026.
- With variable rates currently around 6%, that means being tested near 9%.
- Credit card limits count in full, whether or not you use them.
- A decline is not recorded on your credit file, but the application is.
You did the sums. The repayments fitted your budget with room to spare. You applied, and the answer came back no.
The reflex is to assume something’s wrong with your finances. Usually there isn’t. What’s happened is that one lender assessed your file against one set of criteria, using a repayment figure considerably higher than the one you’ll actually pay.
The buffer that decides it
Lenders don’t test you at the rate you’re offered. They test you at that rate plus three percentage points, a serviceability buffer required by APRA and retained through 2026 on the grounds of household debt levels and economic uncertainty.
Typical variable rates currently sit between 5.99% and 6.15% depending on the lender. Take 6% as a round figure, and your application is assessed near 9%. The gap is substantial:
| On a $400,000 loan over 25 years | Monthly repayment |
|---|---|
| At 6%, what you’d actually pay | about $2,577 |
| At 9%, what you’re assessed on | about $3,357 |
That’s roughly $780 a month you must demonstrate you could absorb, on top of the repayment you budgeted for. Most declines happen in exactly that gap. Figures are illustrative and depend on your lender, loan type and fees, though the gap barely moves across the current rate range.
What lenders count that you might not
Credit card limits, not balances. An unused $20,000 card is assessed as available debt. Closing cards you don’t need is the single fastest way to change your position, and it can move borrowing capacity by well over the limit itself.
Buy now, pay later accounts. These show on bank statements and lenders read them as recurring commitments.
HECS or HELP debt. It reduces net income and therefore serviceability, even though it isn’t a conventional loan.
How your income is shaped. Bonus, commission, overtime, casual and self-employed income are all discounted differently by different lenders. Two applicants earning the same amount can get materially different answers.
Living expenses as declared. Lenders benchmark against your actual statements, not the figure you nominate.
What your credit file says about you
Serviceability is only half the assessment. The other half is your track record, and it’s read more closely than most applicants expect.
Defaults and late payments. A default stays on your file for years. Even a pattern of paying bills a fortnight late tells a lender something about how you’ll handle a mortgage.
Frequent enquiries. Every credit application leaves a mark, whether it’s a home loan, a car loan or a store card at Christmas. A file with enquiries scattered across the past six months reads as someone under pressure, regardless of whether those applications succeeded.
You want your credit report to look quiet and boring. That’s the whole goal. A file with nothing much happening on it is the one lenders are most comfortable with, so if you know you’re applying in the next six months, stop opening things.
What to fix, in order
Start with what moves the numbers fastest.
- Close unused credit facilities. Immediate effect on assessed debt.
- Clear small personal loans. A short-term loan with high repayments hurts serviceability out of proportion to its balance.
- Leave your accounts tidy for three months. Lenders read recent statements closely. Gambling transactions and repeated overdrawn balances do real damage.
- Reconsider the loan amount or the deposit. A smaller loan, or a larger deposit that takes you under 80% of the property value, changes both the assessment and whether lenders mortgage insurance applies.
The mistake that compounds
Applying again immediately, somewhere else, with the same file.
A decline isn’t recorded on your credit file. The application is. Several enquiries in a short window read as someone shopping desperately, and each subsequent lender sees that pattern. You can turn one no into a sequence of them without changing anything about your actual position.
The order matters more than the speed. Work out why the first answer was no, change something real, then apply to a lender whose criteria fit your circumstances.
Where a broker changes the outcome
Two places specifically.
The first is knowing, before anything is lodged, which lenders treat your income type favourably. That knowledge isn’t published. Serviceability policy differs between lenders in ways that rate comparison sites don’t show, and it’s the difference between an approval and a knock-back for the same applicant.
The second is sequencing. A broker assesses your position against lender criteria first, so the application that does get lodged is the one likely to succeed. That’s the whole argument for using one, covered in more depth in our guide to what changes when you use a broker.
If you’ve already been declined, bring the paperwork. Knowing which lender said no, and ideally why, tells us a great deal about where to go next.
Contact us with your situation and we’ll tell you what needs to change before you apply again. AGS brokers work from all six offices, including North Sydney, Melbourne and Brisbane.
Frequently asked questions
Does a declined application show on my credit file? The application shows, but the decline itself does not. Credit files record that an enquiry was made, not the lender’s answer. Several enquiries in a short window still read as a warning sign, which is why the order you apply in matters.
How long should I wait before applying again? Long enough to have changed something. Reapplying with the same file to the same lender gets the same answer. If you’ve closed a credit card or your income has changed, that’s a new application rather than a repeat.
Can I apply to a different lender straight away? Yes, and often you should, because lenders differ substantially in how they treat income types and existing debts. Have your position matched to that lender’s criteria first rather than applying blind.
Why does my credit card limit matter if I don’t use it? Lenders assess the limit, not the balance. An unused $20,000 card is treated as debt you could draw tomorrow, and it can reduce your borrowing capacity by considerably more than the limit itself.