Many people worry about credit card debt and what it might mean when for securing a mortgage. Applying for a mortgage can be stressful and no one wants to risk their mortgage application being declined. However, it's perfectly possible to get a mortgage even if you have some credit card debt.

We explore what to expect when applying for a mortgage with credit card debt and how a broker will be able to support you through the process.

How Does Credit Card Debt Affect a Mortgage Application?

There are multiple ways that having credit card debt could affect your mortgage application. One of the main details lenders will consider is how much credit card debt you have compared to your income. They will also want to see how you are using your credit cards as this tells them about your budgeting and general money habits.

Why Are Lenders Worried About Credit Card Debt?

Lenders are worried about credit card debt for 2 main reasons:

  • Affordability - your ability to afford your mortgage and what you can reasonably be expected to repay each month
  • Money habits - how well you budget and how likely you are to get into more debt

Lenders have to protect themselves and make sure that you can meet your monthly repayments. This is why credit card debt as well as other debts and credit issues can make it more difficult to get a mortgage.

How Does Credit Card Debt Affect Affordability?

During the affordability assessment, lenders look at your incomings and outgoings to assess whether or not you can afford your monthly mortgage payments based on the loan value and term length. Any credit card debt is considered when assessing your affordability. This is so that the lender doesn’t lend more to you than you can afford to pay back if you’re also paying back other debts.

The exact effect that credit card debt has on your affordability will depend on the details of your credit card and the lender’s own calculations.

How Much Credit Card Debt is Too Much When Applying for a Mortgage?

Generally, the more credit card debt you have, the more impact it will have on your mortgage application. However, there's no hard and fast rule for how much credit card debt is too much. This is because the main consideration for lenders is affordability. If you're applying for a mortgage with high credit card debt but also have a high enough income to offset this, you'll still likely find a mortgage offer. The higher your debt to income ratio, the more difficult it may be to find a competitive deal.

Will Lenders Look at My Credit History?

Yes, lenders will look at your credit history regardless of whether you have credit card debt to consider. Your credit history gives a good overview of your budgeting and financial habits. If you have no or a poor credit score you can still get a mortgage, but this can be harder and you’ll find the deals available to you limited.

Does Credit Card Debt Affect My Credit Score?

Having credit card debt will affect your credit score and can reduce the deals available to you.

The following will have a negative impact on your credit score:

  • High credit usage - if you use a large percentage of your credit allowance, this could deter lenders. For example, if you consistently use over 60% of your available credit, this might mean that you have trouble budgeting. Maxing out your credit card frequently won’t be looked upon favourably by lenders and could make you less likely to get a mortgage offer
  • Late credit card payments - one of the biggest risks is having late or missed payments. This will negatively affect your credit score. Some lenders refuse to offer mortgages to people with missed payments, so you should always aim to make sure that your credit card payments are made on time

Do I Have to Declare My Credit Card Debt?

Yes, you have to tell a mortgage lender about your credit card debt when applying for a mortgage. Trying to conceal credit card debt could be considered a type of fraud. This means that your mortgage could be denied, or you could be prosecuted. Most debt will appear anyway when the lender does a hard credit check, so it's always best to be honest with your broker and lender about the debt you have.

Can I Get a Mortgage with Missed Credit Card Payments?

Missed payments are typically more of an issue to lenders compared with simply having credit card debt you’re currently repaying. In this case, your credit score will be affected and some lenders won't consider you for a mortgage. This usually depends on how large the missed payments or defaults were and how long ago they were settled. You may want to consider using a mortgage broker to access bad credit lenders that are more likely to consider your application if you have significant credit card debt.

Specialist Lenders for Adverse Credit Cases

There are lots of lenders out there who focus on offering mortgages to people with poor credit. There are some downsides to using a bad credit lender, including:

  • Deposit - the deposit requirement for a borrower with poor credit may be higher than for a borrower with great credit to offset the increased risk taken on by the lender. This could be a deposit of as much as 25% or more
  • Interest rates - most adverse credit lenders have higher interest rates than high street lenders as they’re lending to higher risk borrowers

If you're looking for a specialist mortgage lender because of poor credit or missed payments, it can be highly beneficial to go through a broker. Mortgage brokers have access to adverse credit lenders that require intermediaries and won’t liaise directly with customers. You might also need to use a specialist lender if you have county court judgements on your credit record.

Getting Specialist Mortgages with Credit Card Debt

Since having bad credit often means going through a specialist bad credit lender, you might struggle to also get a mortgage offer on a property with other complex considerations.

For example, lenders are sometimes unwilling to offer adverse credit mortgages on properties such as:

  • Non-standard construction - for example concrete or metal framed properties
  • Non-standard flats - very small flats, high-rise flats, or flats with some cladding types
  • Shared ownership - properties in shared ownership schemes
  • Ex-council homes - including ex-local authority houses and flats

If you're looking for an adverse credit mortgage on a property like this, you should contact a mortgage broker for the best chance of finding and securing a suitable product.

Is Combining Credit Card Debt with a Mortgage an Option?

Some lenders may allow you to remortgage your property for the mortgage balance remaining plus some extra so you can pay off your credit card debts, via a debt consolidation mortgage. This basically means that your debts will be consolidated into one big debt – your mortgage. For debt consolidation, it’s best to speak to a mortgage broker like John Charcol who can walk you through how it works.

Bear in mind that while consolidating debt can allow you to pay off credit cards sooner, the debt itself simply becomes part of your mortgage and is secured against your property, which means you may pay more interest overall as you pay back your mortgage over time.

Do Other Debts Affect My Mortgage Application?

Just like credit cards, other types of debt can affect your chances of getting a mortgage. This is because all your debts are taken into account when considering your affordability. Different types of debt that might affect your application are:

  • Overdrafts - these are often treated much the same as credit cards. Lenders will want to see that your monthly repayments do not affect your ability to meet your mortgage payments and that you’re not always utilising all of your overdraft
  • Unsecured loans - most loans will be seen as similar to credit cards, though you might be expected to explain the reasoning behind any particularly large loans
  • Payday loans - if you have payday loans, you're more likely to struggle to find a mortgage. Payday loans suggest that you have trouble managing your finances and they can leave negative marks on your credit history for a long time, even once they are fully paid off. In the case of payday loans, you may also need a specialist lender for people with adverse credit

Can I Remortgage with Credit Card Debt?

Yes, if you meet the lender’s affordability criteria you’ll still be able to apply for a remortgage.

Can I Get a Second Home with Credit Card Debt?

Getting a second home or a holiday house mortgage can be harder when you have credit card debt. This is because affordability checks will have to consider all your other payments and they’re usually harsher on second homes since default rates are higher. However, as long as you can meet affordability checks and pay a suitable deposit, you can still get a second home mortgage with credit card debt.

Does Having a Credit Card Help My Mortgage Application?

If you are spending responsibly on your credit card, this can actually help build your credit rating and thus improve your chances of securing a great deal. Usually this means spending less than 60% of your credit limit at any one time, as well as making all your payments promptly. This shows that you are managing your finances responsibly and budgeting appropriately.

How to Build Credit

It can be harder to get a mortgage with poor credit or with no credit history. If you want to build your credit rating in order to increase your chances of getting a mortgage or securing a better deal, you can do so stable managing of credit. It can sometimes be advisable to get a credit card to build your credit history, as long as you’re spending less than 60% of the limit and repaying it on time.

Find out more about how to improve your credit score.

Should I Close My Credit Card Before Applying for a Mortgage?

Some lenders want to see that you have paid off credit card debts before accepting you for a mortgage, but this doesn't always mean that you need to close your credit cards once they’re fully paid off. Whether the account is closed or not won’t typically impact your mortgage application if the credit card has already been paid off.

How a Broker Can Help You Get a Mortgage with Credit Card Debt

Mortgage brokers like John Charcol can help you secure better mortgage offers even if you have poor credit or larger credit card debts. We have access to lenders from across the market, including ones that only work through intermediaries. We’re also bad credit experts which means we can learn about your circumstances and match you with a lender that has criteria that aligns with your situation.

Mortgages and Credit Card Debt - Roundup

Applying for a mortgage with credit card debt can be more difficult than a regular mortgage application, but it's still very much possible. If your credit card debt is minor and it’s well within your abilities to pay it back alongside your mortgage then it shouldn't affect the deals available to you too much.

If you have major credit card debt this can affect your affordability and your mortgage options. Any missed or late payments or defaults will also limit the deals available to you. In this case, consider specialist lenders who offer mortgages to people with adverse credit.

If you're having trouble getting a mortgage due to debts, consider the help of a professional mortgage broker. At John Charcol, we have plenty of experience getting people great mortgage deals even if they have issues with debt. Get in touch today to see how we can help.

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