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Can a Credit Card Affect your Mortgage?

Joe Lytwyn - 7.5+ Years Financial Exp. | 24th September, 2022

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?

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:

Make sure repayments are never late. Make at least the minimum repayment on time each month.

Improve debt-to-income ratio by paying off debts where possible. Your existing debt repayments may reduce the amount you can borrow.

Reduce credit utilisation. Try to keep credit card balances below 30% of your credit limit if you can. This suggests you are on top of your finances.

Check your credit file and ask for any mistakes to be corrected. This helps to avoid being unnecessarily penalised by a low credit score.

*Source(s):

UK Finance, Credit Card Spending Update May 2022

53 Million Credit Cards, 36 Million Active Card Accounts

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About the author

Joe Lytwyn

7.5+ years financial experience

Date published: 24th September 2022

Latest edit: 21st February 2024

* To build your credit rating and to be considered for credit limit increases, use your card sensibly, stay within your credit limit and pay at least your monthly minimum payment on time. Not doing so could harm your credit rating and make obtaining credit more difficult.

** Under section 75 of the consumer credit act 1974 credit card purchases over £100 are protected in some circumstances.

The thimbl. credit card and the thimbl. Loan are issued by Vanquis Bank Limited. Digitonomy Limited (trading as thimbl.) is a credit broker not a lender, and provides its services to Vanquis on an exclusive basis in respect of each of these products. Digitonomy is paid commission from Vanquis for these services. If Vanquis are unable to provide you with one of these products, Digitonomy will try to find you an alternative product and will receive commission from the provider of that product if you enter into an agreement for it. Digitonomy's registered office is: Steam Mill Business Centre, Steam Mill Street, Chester, Cheshire, CH3 5AN. Registered in England and Wales, under company number 08385135. Digitonomy is authorised and regulated by the Financial Conduct Authority, and is entered on the Financial Services Register under reference number 690249. Licenced by the Information Commissioners Office, (registration number ZA007309).

Vanquis Bank can be contacted at its registered office, which is at No. 1 Godwin Street, Bradford, West Yorkshire BD1 2SU. Registered number 02558509 England. VAT number 180555952. Vanquis Bank Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register No. 221156).

All rates are variable after their applicable introductory period. If no introductory period applies the rate(s) is/are variable from the date of the agreement. All applicants must be aged 18 or over and resident in the UK. Credit is available subject to status and conditions.