When you’re preparing to apply for a mortgage, it’s normal to want to make sure you have the best chance possible of being accepted.
And, with the strict affordability checks that take place, it’s safe to say a credit card probably will have some effect on the outcome of your mortgage application.
However, that doesn’t mean it will stop you getting a mortgage. The lender’s decision depends on a number of factors, including how much room you have in your budget, how much you owe on the card, how long you’ve had it for and how well you’ve managed it.
How much do you owe on it?
Because a mortgage is such a big financial commitment, the lender must make sure you’re in the position to afford to repay it every month – even if your situation changes.
This is why they look at your income and outgoings in detail. They’ll look at how much you spend on everyday things, from your rent and food bills, to non-essentials like dining out and socialising. Of course, included in this is how much you pay each month to other lenders.
So if you have a high credit card balance, you’re probably making higher payments each month to the lender.
Your mortgage lender will see this when you apply, and it may influence their decision to lend to you. In some cases, they may decide to turn you away if they don’t think you could afford to make mortgage payments too. Even if they don’t, they may decide to lend you less than you hoped.
If you can, aim to clear as much of your credit card balance as you can before you start the application for a mortgage. Even if it means putting your plans to buy a home on hold and making large payments towards your debts for a few months, it will be worth it in the end.
Do you make your payments on time?
This is another important factor that could seriously impact your chances of getting a mortgage.
When you miss a payment to your credit card balance, it damages your credit history, which may make it difficult to get credit in the future.
It’s vital that you make your payment on time each month – whether that’s for a credit card, loan, or even your mobile phone and utility bills. If you don’t, your mortgage lender may see these missed payments and worry that you’ll miss payments on your mortgage too. They could decide not to lend to you because of this, or they may offer you less than you need.
A good way to prevent this happening is to set up a Direct Debit to make at least the minimum repayment each month. This way, you’ll avoid missing a payment – as long as you have the cash in your bank account to make it – which means your credit history won’t be damaged.
How long have you had it for?
You may not have realised, but just how long you’ve had your credit card for could affect your application too.
If you’ve had the credit card for a while, perhaps a year or more, you shouldn’t worry about it having too much of an effect on your mortgage application. So long as the balance isn’t too high and you’re making monthly repayments that you can manage, the mortgage lender should be able to see this.
On the other hand, if you’ve only just got a credit card, you might want to hold off for a couple of months before applying. Lenders don’t like to see that you’ve got a lot of unused credit at your disposal, because this could, in theory, mean that you go on a spending spree on your credit card one day and then struggle to repay your mortgage.
While we understand this is unlikely, it’s best to hold off for a few months and keep your balance low if you can.
At the same time, it’s a good idea to hold off applying for any credit cards when you’re thinking of applying for a mortgage. If you still need the credit after you’ve got a mortgage, you can think about applying again, but you must make sure you’ve got the room in your budget to make payments on both without struggling.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.