Getting a Mortgage With Credit Card Debt
Looking for a mortgage but worried about the amount of credit card debt you currently have? Read our in-depth article to find out everything you need to know.
Firstly, do you have any outstanding credit card debt?
No impact on your credit score
Author: Pete Mugleston - Mortgage Expert, MD
Updated: December 15, 2021
A lot of people worry about getting a mortgage with credit card debt, but the good news is that debt is definitely not a deal breaker.
In this article we’ll look at the factors that can affect your chances of getting a mortgage with credit card debt as well as some things you can do to help.
The following topics are covered below...
Can you get a mortgage with credit card debt?
Yes, it’s very possible. The fact of having credit card debt isn’t going to automatically discount you for a mortgage, it’s about how that debt fits in with your wider financial picture, how it came about and what impact it has had on your credit score.
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Factors that affect approval chances
When assessing your credit card debt as part of your mortgage application, lenders will be looking at a few different factors. It’s important to understand how these impact your application, so before you start it’s a good idea to sit down and work through each of these, with the help of your credit file, to see where you stand and what improvements you might be able to make.
Debt to income ratio
Although the overall amount of credit card debt you have is important, lenders are more interested in your debt relative to your income, known as your debt to income (DTI) ratio. Your DTI ratio is how much of your income goes towards servicing your debts every month and includes your current mortgage payments, credit cards, loans, car finance – anything that’s a debt rather than a bill.
For example, if your monthly household income is £3,000, your current mortgage is £700 per month and you have monthly minimum commitments on loans and credit cards of £300, then your DTI ratio would be 33%. Most lenders are happy with around 20-30% as fairly low risk but if your DTI ratio is approaching 50% then lenders will start to get cautious.
Try our debt-to-income calculator below to work out what your DTI is.
Debt to Income Ratio Calculator
You can use our debt-to-income (DTI) ratio calculator to work out how much of your income is going towards your fixed outgoings, expressed as a percentage. Based on that percentage, this tool will tell you whether mortgage lenders will class your DTI as low, medium or high.
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.
Credit utilisation rate
Another ratio, designed to give lenders more context, is your credit utilisation rate. This is the amount of credit card debt you have as a proportion of what you could have. For example, if you have two credit cards, one with a £2,000 limit and one with a £3,000 limit, the maximum amount of debt you could have is £5,000. If between the two cards you only have £1,000 of debt then this gives you a credit utilisation rate of 20%.
Most lenders look for credit utilisation rates of 30% or lower as showing a responsible approach to borrowing, so if your credit cards are maxed out then you might find it difficult to convince lenders that you’re a safe pair of hands.
Don’t be tempted simply to apply for more credit cards in order to increase your overall credit limits as this could impact your credit score and leave you in a worse position.
Credit card debt in itself needn’t be a bad thing, in fact if your credit file shows you managing a debt well and making regular, timely repayments this can actually improve your credit score over time. Missed payments however can have the opposite effect, leaving a black mark on your credit file and warning potential lenders that you might be more likely to default on your mortgage payments.
While missed payments don’t make a mortgage impossible, they can make it more difficult and you may need to go through a broker who specialises in mortgages for people with bad credit.
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How a broker can help
If you’re worried about getting a mortgage with credit card debt then the very worst thing you can do is bury your head in the sand about it and go ahead and make an application, hoping it works out. If your first application is rushed or badly judged and ends up getting turned down this will only impact your credit score further.
The best option is to go straight to a broker who specialises in mortgages with credit card debt. They’ll be able to honestly appraise your situation, suggest steps you can take to improve your position and then choose the best lender for your individual circumstances. They’ll have experience and understanding of the whole of the mortgage market, and so will make sure that your credit card debt doesn’t mean you miss out on a great mortgage deal.
Which lenders will consider your application?
Your choice of lender will depend on all of the factors discussed above, and how important a part they play in a lender’s decision making process. Unfortunately this will vary hugely, for example many lenders will assess DTI ratios on a case by case basis, but others impose maximum limits. HSBC and Bank of Ireland for example limit to 50% and a few are even lower. Fortunately your broker will be able to save you a lot of research time here by finding the lenders who are the best fit for you.
Which lenders have you already tried?
40% of our customers had been declined elsewhere before coming to us. The brokers we work with will be able to assess your circumstances and then identify the right lender for you instead of going direct.
Should you pay off your credit cards before applying for a mortgage?
This is a tricky one as there can be pros and cons to trying to quickly clear a debt. On the one hand, bringing down your DTI ratio and your credit utilisation rate will have a positive effect, but making significant changes to your debts can have a negative impact on your credit score, in the short term at least. If you do want to pay off large amounts it might be sensible to do this as early as you can to give your credit score time to resettle.
To increase your chances of success you could also consider:
- Boosting your income to reduce DTI ratios and increase your disposable income
- Making just large enough payments on your credit cards to bring down your credit utilisation rate to acceptable levels
- Checking your credit file for any errors that could be impacting your credit score
- Offering a higher deposit
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Can you remortgage with credit card debt?
Yes, absolutely. All of the same factors apply as if you were applying for a mortgage for a new property – lenders will still want to assess affordability, DTI ratio, credit utilisation and credit scores. If you have credit card debt that you want to consolidate into your remortgage this may also be possible. Ask your broker for advice on this.
Get matched with a broker specialising in mortgages with credit card debt
The safest way to apply for a mortgage with credit card debt is to use a broker who specialises in these types of mortgages. They will be able to help you get in the strongest possible position before you start and then find you the best deal at the best rates.
Use our free broker-matching service and we’ll quickly assess your needs and pair you with a specialist broker who understands your circumstances.
Call 0808 189 0463 or make an enquiry and we’ll set up a free, no-obligation chat between you and an expert advisor today.
If you’re wondering whether to take a loan to clear your credit card debt before you apply for a mortgage, the answer to this question is that lenders don’t typically favour one or the other. Any loans or credit card debt will be factored into your debt-to-income ratio and, as long as you can afford the repayments on them and have kept up to date with them, neither should impact your mortgage prospects too heavily.
Your lender might be keen to establish the reason for your loan or credit card debt and will take note of the amount of it, but one type of debt isn’t particularly preferable over the other.
Your mortgage lender might ask you how much credit card debt you have remaining during the application process, as this will need to be factored into the affordability assessment.
It is not, under any circumstances, recommended that you attempt to hide the true amount or offer a misleading answer about your credit card balance if the lender asks about this. Doing so could be considered mortgage fraud and result in your application being cancelled.
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Mortgage Expert, MD
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 OMA of course!