Can a Credit Card Affect your Mortgage?

How will a credit card affect your mortgage application? Is it a good idea to take out a new credit card when applying for a mortgage? What about any existing cards you have? If any of these questions resonates with you, keep reading as we’ll be looking at the things you may want to consider if you have a credit card and have or are applying for a mortgage.

According to ukfinance.org.uk as of July 2022, there are over 53 million credit cards held in the UK with an estimated 36 million credit card accounts which are active, so a mortgage lender won’t be surprised if you have a credit card. However, it’s still worth getting prepared before you make a mortgage application.

Will a Credit Card Affect my Mortgage Application?

Many factors affect mortgage lenders’ decision-making, but your credit history is a critical one. Having a credit card that you’ve managed well for some time can be helpful. A good credit track record suggests to potential lenders that you are more dependable for payments.

A history of bad credit can impact your mortgage application and potentially hinder you accessing the best deals. If you have bad credit you may have to pay higher interest rates or the loan-to-value amount from the Mortgage Broker may be lower, meaning you will have to pay a bigger deposit.

Mortgage Lenders can also factor in existing debt repayments when considering how much they are willing to lend to you. An existing credit card balance could reduce the amount the mortgage lender will offer you.

Loan-to-Value also known as LTV is the ratio of what you borrow as a Mortgage against how much you have put down as your Mortgage deposit.

How Do Late Credit Card Payments Affect Mortgage Applications?

A potential mortgage lender will be able to see a late or missed payment on your credit file and may see it as a sign of financial difficulty. This could reduce the lenders and mortgage products you have access to.

The more recent the missed payment, the more impact this is likely to have. Missed payments stay on your credit file for up to 6 years. After this time, it will be removed from your file and have no further impact on any applications.

How does Late Credit Card Payments affect Mortgage Applications?

A potential mortgage lender will be able to see a late or missed payment on your credit file and may see it as a sign of financial difficulty. This could reduce the lenders and mortgage products you have access to.

The more recent the missed payment, the more impact this is likely to have. Missed payments stay on your credit file for up to 6 years. After this time, it will be removed from your file and have no further impact on any applications.

Will Applying for a Credit Card Affect my Mortgage Offer?

If you are considering to apply for a mortgage it is worth doing research to check if it is the best time to take out a new credit card, depending on your financial situation. Depending on your overall financial situation, some lenders could see it as a sign of financial difficulty.

You also want to avoid being rejected for a new credit card or making lots of credit applications in a short timeframe, this could harm your credit score and impact your chances of being accepted for a mortgage.

Can a Credit Card Help to Build my Credit Score before I Apply for a Mortgage?

If you have a poor credit history or are lacking a credit track record, taking out a credit card could help in the long term. Using a credit card and making all repayments on time could help build your credit score over time.

It’s important to remember that this would be just one of many factors a mortgage lender would consider. If you build up credit card debt, this may reduce the size of the mortgage you can get.

Finally, here are some tips from our Blog Author for mortgage-friendly credit card usage: