First home buyers are being urged to reduce their limit or get rid of their credit cards if they want to maximise the amount they can borrow to get on the property ladder.

Research by mortgage broker Mike Pero Mortgages has found a $10,000 credit card limit could reduce the home loan borrowing potential of a couple by $47,000 - even if they don't have anything on their credit card or pay it off in full every month.

A $15,000 limit could drop their borrowing potential by $80,000 while a $20,000 limit could reduce it by nearly $100,000.

Mark Collins, chief executive of Mike Pero Mortgages, said banks based their decisions on the fact that people could draw up to the limit of their credit card, even if they didn't intend to.

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"Many first home buyers tend to think it's okay to have credit cards as long as they don't ever draw down on them.

"That's not how the banks look at it. They have to consider that at any point you could draw down on the full amount, so they look at future potential credit card debt when calculating serviceability, rather than just the amount owing."

Collins said the figures were based on a couple who earned $130,000 between them but even increasing their income by another $100,000 would not make a difference to their borrowing power.

He said banks knew that roughly 60 per cent of people did not pay off their credit card balance in full every month.

"That is what they are worried about."

If people got behind with their credit card payments they were more likely to focus on paying that debt off because of its higher interest rates than other debt, putting home loan repayments at risk, he said.

Collins said the irony was that applying for a new credit card would not be affected if someone already had a mortgage.

"Get your mortgage sorted first," he said.

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Although, he added, that at the end of the day people needed to be responsible with their borrowing.

"You shouldn't be taking out credit you don't intend to use."

Mark Collins, chief executive of Mike Pero Mortgages. Photo/Supplied
Mark Collins, chief executive of Mike Pero Mortgages. Photo/Supplied

Collins said the company decided to undertake the research to encourage people not to spend up large on their credit cards if they planned to apply for a mortgage in the New Year.

"One of the things we know each year we get the biggest inquiries for debt consolidation in the New Year."

Collins said people planning to seek mortgage borrowing in the New Year could help their cause by paying off credit cards and then getting rid of them completely.

"The plastic tends to get a workout leading up to Christmas and over New Year, so our advice is to be very wary of taking on too much credit card debt.

"Getting rid of credit cards can make a huge difference to the amount you can borrow.

And it's not just credit card debt or limits that affect your home loan borrowing ability.

Collins said overdrafts, store credit cards and personal loans all had an impact.

"Any sort of credit on one side affects credit on the other side."

He said people needed to consider what sort of debt they wanted to take on.

"You don't get capital gains and you can't live inside credit card debt."