Getting a Mortgage With Credit Card Debt

Find out how to get a mortgage with credit card debt and what the impact might be to your mortgage application.

Firstly, do you have any outstanding credit card debt?

Home Bad Credit Mortgages Getting A Mortgage With Credit Card Debt

Author: Pete Mugleston

Mortgage Advisor, MD

Reviewer: Nathan Porter

Independent Mortgage Advisor

Updated: March 15, 2024

How we reviewed this article:

Our experts continuously monitor changes in the financial space and work closely with qualified mortgage advisors for factual verification.

March 15, 2024

We’ll discuss the challenges of applying for a mortgage with credit card debt, how to get approved and how the right mortgage broker can help you.

Can you get a mortgage with credit card debt?

Yes, you can get a mortgage with credit card debt. Lenders will evaluate how this debt impacts your affordability, focusing on your credit score, income, and debt-to-income ratio. Effective debt management and financial stability are key to enhancing your chances of being granted a mortgage.

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How to get a mortgage with credit card debt

Your first step should be to find a broker who specialises in arranging mortgages for people with credit card debt. Make an enquiry with us and we will match you with the right advisor for this for free.

Your mortgage broker will then walk you through the following steps:

  • Calculating how much you can borrow: This can be difficult to accurately work out without the help of an expert as your credit card debt will need to be factored in along with your other outgoings. Fortunately, your mortgage broker will be able to provide you with bespoke and accurate calculations.
  • Downloading your credit reports: Once you’ve done this your mortgage broker will review them with you and suggest ways to optimise them.
  • Finding the right lender and best rate for you: This is a much easier process with the right mortgage broker on your side, as they will know exactly which lenders are best placed to offer the perfect mortgage for you, and can potentially help you secure a lower interest rate in the process.

Important

Most mortgage providers may view multiple credit applications, made within a short space of time, as a sign of financial difficulty, which will be reflected in your credit score. So if you’re looking to make a large purchase on credit (such as a mortgage) in the near future, you should keep this in mind.

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How does having credit card debt affect your mortgage application?

Your monthly credit card repayments will be seen as a fixed outgoing which will decrease your disposable income. This, in turn, could have an impact on the amount you can borrow for your mortgage by increasing your debt-to-income ratio. View our calculator below to work out what yours is and how it affects your chances of borrowing the amount you need.

A small amount of credit card debt that is likely to be settled shortly is unlikely to be damaging, but a high credit card utilisation rate across multiple credit cards might raise concerns among mortgage providers.

How the mortgage lender will calculate your credit card debt

Mortgage lenders will look at two things: how much your credit card repayments add to your debt-to-income ratio and your credit utilisation rate.

Your debt-to-income ratio will tell the lender what percentage of your monthly income is tied up in fixed outgoings. You can work yours out and learn how risky that will make you to mortgage lenders by using our calculator below:

Debt to Income Ratio Calculator

This calculator allows you to calculate your debt-to-income ratio and will indicate whether mortgage lenders will classify it as low, medium, or high risk.

The amount you get paid each month, after any taxes or contributions have been deducted
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Be sure to include all of your fixed outgoings, as well as any loans or credit card payments you make
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Your Results:

Your Debt to Income Ratio is %

Good news! Most mortgage lenders will class your debt-to-income ratio as low. You’re unlikely to be declined for a mortgage based on your outgoings, but speaking to a mortgage broker before applying is still recommended as they can improve your chances of getting the best deal.

Most mortgage lenders will class your debt-to-income ratio as moderate, which means some of them might view your application with caution. Some lenders are much more strict than others when it comes to affordability and debt, so it’s important for you to find a lender who’s more lenient. You should speak to a mortgage broker before you apply to ensure you’re matched with a lender whose criteria you fit.

Most mortgage lenders will class your debt-to-income ratio as high. But that’s where we can help! With so much of your monthly income going towards debt repayments, you could struggle to get approved for a mortgage without the help of a mortgage broker. We can help you find a lender who’s more lenient on debt and affordability, and could still secure a mortgage approval.

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Your credit utilisation rate is the percentage of credit card debt you have offset against the maximum amount you could potentially have if all of your cards were maxed out.

For example, if you had two credit cards with a £2,000 limit on each, the maximum amount of credit card debt you could have would be £4,000. If you had £1,000 worth of debt on each card, your utilisation rate would be 50%.

Most mortgage lenders consider a 30% utilisation rate to be responsible borrowing but it is still possible to get a mortgage for a higher percentage than this.

How much credit card debt is too much?

There’s no hard and fast rule about how much debt is too much, but the general consensus is the lower your credit card balances, the better. As mentioned above, a credit utilisation rate of 30% or lower is preferred by most lenders.

Yet if you’ve maxed out a few cards and your debt-to-income ratio is a cause for concern, your mortgage options may be more limited – fewer lenders are likely to consider you if your debt burden is too high, and the terms you’re offered will be less favourable than if you had minimal credit card debt.

It’s always wise to consult a mortgage broker if you’re concerned about the extent of your debt to see the best course of action.

Should you clear your credit card debt before applying?

Yes, It can help your application, as any outstanding debt will be factored into your debt-to-income ratio and may impact the amount you can borrow. Having no credit card debt at all may also boost your eligibility. However, some well-managed credit card debt is unlikely to be a deal-breaker.

If you have a lump sum of money that you are thinking of using to clear your credit card debt, one possible alternative could be to put those funds towards your deposit. It’s worth speaking to a mortgage broker about whether this will boost your chances of securing a good deal and is a better alternative to settling your card debt.

Does a high credit limit affect a mortgage application?

No. Mortgage lenders will often take into account how much credit is available to you,  though as long as you make sure your credit utilisation rate remains at an acceptable level, it shouldn’t have a negative effect.

However, the problem comes if you spend too much of your limit and get yourself into payment difficulties. If you have, it’s best to have a solid reason for it, lenders often like to pinpoint why you ran up the debt in the first place.

If it’s a single emergency event (such as essential home renovations or falling ill) they could view you more favourably than if it’s simply because you overspent.

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Can you remortgage with credit card debt?

Yes, you can, provided you’re able to meet all other affordability criteria and can show that you’re able to manage the repayments. Yet remortgaging for debt consolidation purposes is common as well, and you may be able to release equity to pay off your credit card debt and get back on a more solid financial footing.

Being able to refinance credit card debt onto a mortgage can make a lot of sense – mortgage rates are typically far lower than credit card APRs, which means you could save interest by consolidating. Though depending on the amount you’re looking to borrow, the resulting loan-to-value (LTV) and the extent of your debt, you may need to seek specialist lenders, and it’s always worth consulting a broker ahead of time.

Important

You are more likely to have a better chance of success if you can pinpoint a single credit event that has resulted in a high amount of debt rather than a consistent history of overspending.

Get matched with a bad credit mortgage broker

The right broker will be able to help you get a mortgage with credit card debt, and we’re perfectly placed to help you find the broker to accommodate you.

Our unique broker matching service will take a few details and put you in touch with a broker who has extensive experience with your situation and will be able to help you source the ideal mortgage for your needs.

So, if you’re worried that credit card debt will affect your mortgage application, get in touch for the expert support you need – call us on 0808 189 2301 or make an enquiry and we’ll take it from there.

Maximise your chance of approval with a broker who's a specialist in bad credit mortgages

Get Started Phone Icon 0808 189 2301

FAQs

Yes. Not declaring a credit card on a mortgage application can leave you in hot water – lying on a mortgage application is classed as mortgage fraud, which means at best you could be denied the mortgage, and at worst you could be prosecuted.

It’s a false economy, anyway, as mortgage lenders can see the credit card debt when they take a look at your credit report, and any falsehoods will always come to light during the underwriting process.

You’ll be expected to be truthful and the lender will check, so don’t think that failing to admit to using a credit card during the mortgage application will put you in a better light, as it definitely won’t.

Different types of debt are viewed differently by lenders, but standard loans tend to be seen in broadly the same light as credit cards, so there’s little difference between the two – again, provided you’re able to show effective management.

The exception to this is if you’ve got a payday loan, which can have a hugely negative impact on your eligibility. It’s far more difficult to get a mortgage if you’ve had a payday loan as it suggests financial mismanagement, and this is the case even if it was years ago – if it’s still on your credit report, it’ll downgrade your score in the eyes of the lender, so try to avoid such forms of credit at all costs.

Rarely. Most lenders expect mortgage repayments to be made via direct debit, and won’t accept any other method of payment – particularly not one that adds to your debt burden.

In some exceptional circumstances, lenders may accept a credit card payment, but it’ll normally only be a one-off and still wouldn’t be recommended – your credit card provider may view it as a cash advance which can lead to a higher interest burden, making it a very expensive way to pay for your mortgage.

There are some scenarios in which this can be the case, as showing that you can manage a credit card effectively, actually work in your favour.

That said, while it’s true that having too much credit can put you in a bad light, so too can not having any. Lenders need to see that you’re a responsible credit user, and they’ll only know that if you’ve already used credit in the past.

This means that, if you’ve never had any form of credit before, it may be worth applying for and using a credit card – provided you commit to repaying the balance in full each month – thereby building up your credit score and proving to future lenders that you can effectively manage your credit commitments.

No, not at all.

Your monthly repayments will usually be collected by direct debit from your nominated current account, so as long as you have one of those you’ll be fine.

Having a credit card can have a positive effect on your mortgage application – by boosting your overall credit score – as long as it has been used appropriately over a long period. Trying to apply for a mortgage with high credit card debt can have the opposite effect.

The general advice for any line of smaller credit – such as a credit card or a personal loan – is to try and avoid applying if you know you’re going to be looking at getting a mortgage 2-3 months further down the line.

This timescale will give your credit record time to re-set and will avoid multiple credit checks being completed so close together, which will raise some automatic red flags amongst providers.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for Online Mortgage Advisor of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

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