Getting a Mortgage with Credit Card Debt

If you have credit card debt you may be concerned about getting a mortgage. Credit card debt can have a big impact on your mortgage application and is often overlooked by borrowers who want to buy property.

The good news is credit card debt should not prevent you from getting a mortgage. If you have credit card debt this guide will explain how it affects a mortgage application and what you can do to increase your chances of success.

Let’s get stuck in.

How Does Debt Affect Getting a Mortgage?

Debt can affect a mortgage application in two ways:

  • Credit scores can be damaged by debt
  • Your affordability might be limited by debt

Credit Scores and Mortgage Applications

When you apply for a Decision in Principle (DiP) or proceed to a mortgage application you will be credit scored by a lender.

Credit scoring is a way for lenders to assess how creditworthy you are. In short, if you are a responsible borrower and pay your debts your credit score will be higher than if you are irresponsible and don’t repay debts.

All lenders have different internal credit score thresholds, some have very high thresholds while others have low thresholds.

Debt can limit the number of lenders available to you. Significant debt or adverse credit will limit the number of lenders available to you and could even cause your application to decline.

Affordability and Debt

When you apply for a mortgage, you will need to pass a lender’s affordability calculation. This is a method lenders use to decide if you can afford a mortgage with your current income and outgoings.

Debt will negatively impact your affordability because you have financial obligations that a lender must consider when offering a mortgage.

For example, if you have credit card debt, a lender may reduce your affordability in line with the minimum monthly payment or in most cases, reduce it by the total amount outstanding on the credit card.

If you have several credit cards or your balance on a credit card is high, a lender may limit your affordability drastically or decline you altogether.

Do You Have to Declare Credit Card Debt?

Yes, you must declare your credit card debt when making a mortgage application.

If you fail to disclose credit card debt, a lender will find out when they do your credit check. They will then ask for additional information or may decline the application altogether.

When you make a mortgage application you are agreeing to provide all information to the best of your knowledge. Lenders take a dim view when significant financial commitments are omitted at application.

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How Much Credit Card Debt is Too Much?

There is no rule or threshold where credit card debt is too much. A lender will consider each application on its own merits. You may have £10,000 of credit card debt but this could be insignificant when your overall financial situation is factored in.

For other borrowers, £10,000 of credit card debt could be too much because they may not have the financial means to repay the debt.

Lenders will look at your financial situation in totality, including the monthly mortgage payments and the affordability of any existing debt.

Remortgaging with Credit Card Debt

Remortgaging with credit card debt works in the same way as applying for a purchase mortgage with credit card debt.

You will be credit scored at the time of making your remortgage application and you will also need to pass the affordability calculation.

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How to Improve Your Chances of Getting a Mortgage with Credit Card Debt

There are several ways to improve your chances of getting a mortgage with a credit card.

  • Clear the credit card debt
  • Pay as much as possible back on credit cards
  • Improve your credit score
  • Show a lender you are living within your financial means

Clear Credit Card Debt

The easiest way to mitigate problems with a mortgage application with credit card debt is to repay the credit card debt in full.

You may also need to close the credit card accounts as well. This is because some lenders see the potential to borrow more as problematic.

If you are struggling to repay your debt it is worth discussing the situation with StepChange, a debt management charity. Unlike debt management companies, StepChange don’t charge a fee for their services and advice.

Pay as Much as You Can on Your Credit Cards

Failing paying the credit cards in full, paying as much as you can on the credit card debt can improve your chances of a successful mortgage application.

Improve Your Credit Score

If your credit card debt has damaged your credit score you may need to take steps to improve your credit score or ask a mortgage broker to find a lender who is better with adverse credit.

Show a Lender You Are Living Within Your Means

Credit card debt is part of a much larger financial picture. Lenders will want to see that you are living within your financial means and not borrowing money regularly to cover your expenses.

For example, regular credit card and overdraft usage will raise red flags with a mortgage underwriter. It is important to put a financial profile in front of a mortgage lender that demonstrates you are living comfortably within your means.

Speak to a Specialist

Lenders have different criteria when it comes to credit card debt. Some lenders are strict whereas others may be more flexible with credit card debt or adverse credit.

A Whole of Market Mortgage Broker will be able to match your credit profile and financial history with a lender and advise you on the best steps to take for a successful mortgage application.

If you are concerned about your credit cards or debt in general, contact Boon Brokers to discuss your mortgage today.

Gerard BoonB.A. (Hons), CeMAP, CeRER

Gerard is a co-founder and partner of Boon Brokers. Having studied many areas of financial services at the University of Leeds, and following completion of his CeMAP and CeRER qualifications, Gerard has acquired a vast knowledge of the mortgage, insurance and equity release industry.