How banks assess a credit card limit: the three-year repayment rule

When you apply for a credit card or a higher limit in Australia, the issuer must assess whether the card would be unsuitable for you under the National Consumer Credit Protection Act 2009 (NCCP Act). For credit cards there is a specific test: a card is treated as one you could only repay with substantial hardship if you could not repay an amount equal to the whole credit limit within the period set by ASIC, which is three years. In practice, lenders work out the monthly payment needed to clear the full limit over about 36 months at the card's interest rate and check it fits in your budget, whether or not you plan to use the limit. That is why a modest income can support a smaller limit than you might expect, and why existing cards with unused limits can count against a new application.

This guide is part of the comparison overview. It is general information, not legal or credit advice.

Where the rule comes from

Responsible lending obligations are in Chapter 3 of the NCCP Act. Before entering a credit contract or increasing a credit limit, a licensee must make reasonable inquiries about your requirements, objectives and financial situation, take reasonable steps to verify your financial situation, and assess whether the contract will be unsuitable. A contract is unsuitable if, among other things, you could only meet the repayments with substantial hardship.

For credit card contracts, section 131(3AA) of the NCCP Act deems substantial hardship where you could not repay an amount equal to the credit limit within the period determined by ASIC under section 160F. ASIC has set that period at three years in the ASIC Credit (Unsuitability—Credit Cards) Instrument 2018/753. Similar provisions apply to credit assistance providers such as brokers. These changes came in with the credit card reforms in the Treasury Laws Amendment (Banking Measures No. 1) Act 2018: the ban on credit limit increase invitations applied from 1 July 2018, and the three-year unsuitability test, the limit reduction and termination rules and the interest rule from 1 January 2019.

What the three-year test looks like in numbers

The test uses the full limit, not your expected balance. Here are illustrative monthly payments to clear a limit in 36 months at a 20.99% purchase rate:

Arithmetic for $10,000: monthly rate = 20.99% ÷ 12 = 1.749%; payment = 10,000 × 0.01749 ÷ (1 − 1.01749^−36) ≈ $376.70. Lenders may use their own assumed rate and buffers, so their figures can differ.

A lender then sets that payment against your verified income, your living expenses and your other debt repayments, including the assessed repayment on any other credit card limits you hold. Two unused cards with $10,000 limits each can therefore reduce what a new lender will offer, even with zero balances.

What lenders check for a card application

• Income: payslips, or tax returns and notices of assessment if self-employed; sometimes verified through bank statements or digital data sharing.
• Living expenses: what you declare, tested against benchmarks and your bank statements.
• Existing credit: other cards (by limit, not just balance), personal loans, home loans, car loans and buy now pay later accounts.
• Credit report: enquiries, repayment history and any defaults from Equifax or Experian; see credit cards and your credit report.
• Your requirements: why you want the card and the limit, for example rewards on regular spending or travel.

Worked example: why the limit offered was lower (illustrative)

Mia earns enough to have about $450 a month of surplus after living costs and her car loan. She already holds a no-fee card with a $5,000 limit she never uses, and applies for a premium rewards card hoping for a $15,000 limit.

• Assessed repayment on the existing $5,000 limit over 3 years at 20.99%: about $188 a month.
• Surplus left for the new card: about $450 − $188 = $262.
• At 20.99%, $262 a month repays roughly $6,950 over 36 months.

A lender using these figures could not offer $15,000 without the card being presumed unsuitable. Closing or reducing the unused card would free about $188 a month of assessed capacity. Mia could also accept a lower limit, which is often enough for rewards spending she pays off monthly.

How to approach an application

1. Decide the limit you need, not the maximum available. A rewards card paid in full monthly needs only a limit comfortably above one month's spending.
2. Reduce or close unused cards first if they are crowding your capacity. You can request a lower limit online; see credit limits and cancelling online.
3. Check your credit reports before applying, and avoid several applications close together.
4. Be accurate. Understating expenses to get a higher limit removes the protection the assessment is meant to give you.
5. Ask for the written assessment if you think a card was unsuitable when issued; you are entitled to request a copy of the assessment from the credit provider within set time limits.

If you think a card was unsuitable when approved

If an issuer gave you a card or a limit increase you clearly could not afford, you can complain to the issuer and then, if not resolved, to the Australian Financial Complaints Authority (AFCA). AFCA considers whether responsible lending obligations were met and can order remedies such as refunding interest and fees. A financial counsellor can help you prepare; see complaints and official sources.

Frequently asked questions

Does the three-year rule mean I must repay the card in three years?

No. It is an affordability test at approval. Your actual minimum repayment is set by the contract and is usually much lower, which is why the minimum repayment warning matters.

Do buy now pay later accounts count?

Lenders generally consider them as existing commitments. Since 10 June 2025 BNPL is regulated credit and repayments can appear on credit reports.

Can I be refused a limit increase I asked for?

Yes. An increase is assessed the same way as a new card. Issuers also cannot send you unsolicited invitations to increase your limit.

Does a high income guarantee a large limit?

No. Expenses and other commitments matter as much as income, and issuers have their own credit policies.

Sources and where to check

• Federal Register of Legislation — National Consumer Credit Protection Act 2009, sections 128–133 and 160F
• ASIC — Regulatory Guide 209 on responsible lending and credit card unsuitability period
• ASIC Moneysmart — credit cards and credit limits
• Australian Financial Complaints Authority — irresponsible lending complaints
• National Debt Helpline — free financial counselling, 1800 007 007