Highlights
 
●      Interest rate rises usually reduce the amount you can borrow.
●      Good credit health practices, like consolidating smaller debts, can help.
●      Even in an uncertain financial environment, there’s still plenty you can do to keep your financial position strong.

At its May 2026 meeting, the Reserve Bank of Australia again increased the cash rate by 25 basis points to 4.35%. Many of you may now be asking ‘What does this mean for how much I can borrow?’

Generally speaking, a 0.25% cash rate rise could reduce your borrowing power by around $20,000^. For many buyers in the current Australian real estate market, this impact on the total amount you can borrow may be negligible. However, for other loans like credit card debt and personal loans, this rise can be more substantial. In any case, in an environment where interest rates are rising alongside other cost-of-living and inflationary economic pressures, it’s understandable to be concerned about what this means for ongoing repayments.

Of course, while you can’t do much about macroeconomic conditions, the good news is that there are things you can do to help increase your borrowing power and stay in control of your finances.
^ Source: InvestorKit
 

Good credit health practices are paramount

Keeping your borrowing capacity strong starts with good financial health and strong credit practices. This might mean always paying your bills on time, using Buy Now Pay Later (BNPL) responsibly, and staying on top of credit card payments (as well as reducing the number of cards you have, if possible). 

Top tip: Did you know credit card interest rates can vary substantially? Not to mention variations in annual fees and other card charges. It’s worth shopping around to check you have the best card for your circumstances.

If you feel like this rate hike is putting a squeeze on your household finances, now is a good time to look at your overall financial situation. This could include:

• Shopping around for a better deal on your energy providers
• Reassessing your insurance policies to check you’re getting the best value for money
• Reviewing your budget to reduce discretionary spending
• Refinancing and consolidating small debts.

Remember, if you’re worried about your credit score, you can get a free credit report from Equifax once every three months. It’s a great way to check how the changes you make are having an impact on your credit score and overall financial health.

For more regular updates, you can also sign up for our credit report alerts as well as identity protection to help safeguard how your personal information is being used on the web for as little as $9.95 a month. Check out our plans and how they can give you peace of mind when it comes to your credit rating and identity risk.

Navigating a high interest rate environment

After an extended period of lower interest rates, many borrowers are feeling the squeeze of rate rises. Here’s some other strategies from MoneySmart to help ease the pressure:

Switch from monthly payments to fortnightly or weekly payments: the difference in the overall payment amount may be minimal, but this strategy can help reduce the amount of interest you accrue, especially in the early years of a loan.
Consider an offset account: using an offset account to hold any savings can lower the loan balance that interest is applied to.
Got an unexpected lump sum? If you come into some extra money, like a tax refund, use this to make an additional payment and, like with an offset account, reduce the balance that interest is applied to.

Don’t forget, there’s always room to negotiate with your lender, or look at other lenders. Cultivating a strong credit score can help improve your chances of securing a deal that allows you to borrow what you need to achieve your goals.

Register for Equifax Credit Protect Monitoring to help manage and track your credit file before you apply for a loan or attempt to refinance.
 

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstance before acting on it, and where appropriate, seek professional advice from a finance professional such as an adviser.