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How Does Credit Card Debt Affect Getting a Mortgage? 2022

Credit Card Debt Affect Mortgage

For free and impartial money advice and guidance, visit MoneyHelper, to help you make the most of your money.

Our team was recently asked: how does credit card debt affect getting a mortgage?

It is not a simple answer, but we do have the answer for you here. Read on to learn how getting a mortgage with credit card debt is possible.

What Do We Mean by Credit Card Debt?

First off, we need to clear up the main term here – credit card debt.

Often people will use the phrase credit card debt for two completely different things. And it is important to differentiate between them to discuss how does credit card debt affect getting a mortgage.

Sometimes people call any money you spend on a credit card as credit card debt, even if you will make your repayments on time. They call it debt because the money you have spent is not exactly yours. You might simply call it credit card spending.

The other time that we use the phrase credit card debt is when we discuss missed credit card payments. This is when you have not paid the minimum amount you have agreed to with your credit card issuer, and thus, you are in debt to them in more ways than just taking out credit. 

Do These Two Interpretations Matter?

In most occasions, these definitions don’t really matter. But when we are discussing if credit card debt affects the chances of getting a mortgage, they do matter!

Read on to uncover more.

How Does Credit Card Debt Affect Getting a Mortgage?

To answer this question in full, we will answer it as if you mean credit card debt like credit card spending and repaying. And we will answer it in case you are referring to missed credit card repayments. 

How Credit Card Spending Affects Mortgage Applications?

If you take out a credit card – or any other type of credit – and make repayments on time to the full amount, this will increase your credit score.

Your credit score is a statistic that measures how good you are at handling your finances. One of the best ways to increase this score is to take out credit and borrow money. It is only by borrowing money that you can show how good you are at making repayments and how reliable you are.

Therefore, credit card debt when meant to mean credit card spending, is excellent for mortgage applications because it increases your credit score. 

However, if you have a lot of credit to repay, this could hold back your mortgage application. You will have to share information about credit that needs to be repaid to your desired mortgage lender. If you are deemed to have too much outstanding credit, you might not be able to borrow as much on a mortgage.

You might want to repay some of the credit or increase your mortgage deposit amount to counter this issue.

How ‘Real’ Credit Card Debt Affects Mortgage Applications?

Missed credit card repayments have the opposite effect on your mortgage application. Missed payments and unpaid credit card debts will negatively impact your credit score. It shows potential mortgage lenders that you have not managed to make repayments on time or to the full amount.

If you had credit card debt in the past but paid it off with a debt solution or other means, this will also be on your credit file if it happened in the previous six years. If the debt was finalised more than six years ago, it should have dropped off your credit history. 

Either way, unlike credit card spending, credit card debts from missed payments will reduce your chances of getting a mortgage. But the decision will rest on more than just your credit file. 

Tips for Getting a Mortgage with Credit Card Debt

If you do have credit card debts, look to clear them before applying for a mortgage. This will improve your debt-to-credit ratio and will help you get the yes you want. But try to do this a few months before you apply for the mortgage so your credit file has time to update. 

If you have had credit card debt in the past, here are some additional tips for getting a mortgage with credit card debt:

  1. Look for credit file mistakes: sometimes there are errors which might be the difference between acceptance and refusal
  2. Close credit cards you no longer used: leaving them open can also cause concerns among lenders
  3. Pay off any outstanding bills owed
  4. Be honest when disclosing your finances with lenders (don’t lie about previous credit card debt!)

I Need Help to Beat My Credit Card Debt

If you were asking if credit card debt affects getting a mortgage because you have debts today and plan to buy in the future, you might also want a way out of your credit card debt. 

Early strategies which work well include the snowball method and debt consolidation via a balance transfer credit card.

But if your debts have already materialised, you should consider your debt solution options. You might be able to pull yourself out of credit card debt with a Debt Management Plan or Individual Voluntary Arrangement.

But beware, these are the solutions which will be visible on your credit file. That shouldn’t be a reason not to use them if you don’t have other options. Letting your debt materialise is certainly a bad option. 

Recap – How Does Credit Card Debt Affect Getting a Mortgage?

The answer to this question depends on what you mean by credit card debt. If you just mean credit card spending and repaying on time – it helps.

If you mean missing credit card repayments and getting threats from the credit card company, it decreases your credit score and your chances of getting a mortgage.

But it doesn’t necessarily have to rule you out of getting a mortgage completely.

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