Getting a Mortgage With Credit Card Debt

The mortgage process can be overwhelming. It’s even more stressful if you’re worried about getting approved with credit card debts. Up to April 2024, the average UK household had just under £2,500 of credit card debt, so you’re not alone. 

In this Guide, we’ll look at how debt affects your mortgage application, and how to maximise your chances of getting accepted.

Can I get a mortgage with credit card debt?

Yes, It’s possible. Life is unpredictable, and sometimes you need to use your credit card or overdraft to pay for certain things. The good news is, having loans or credit cards won’t stop your mortgage application in its tracks. However, the size of your outstanding balances could affect how much you can borrow. 

Mortgage lenders look at a number of different factors when deciding whether to give you a mortgage. Things such as your income, deposit, and your credit history will all influence whether or not you’re approved. Lenders will also check how good you’ve been with making your previous credit repayments.

Can I get a mortgage with an overdraft?

Yes, you can get a mortgage even if you’re using your bank account overdraft. It’s unlikely you’ll be refused just for that reason. If you meet the rest of the mortgage lender’s criteria then you still have a good chance of being accepted.

If you’re worried about big credit card balances or a frequently used overdraft, get in touch to speak to one of our friendly Mortgage Experts. They’ll look at your options and help you find the right mortgage for your needs.

How does debt affect getting a mortgage?

It’s a mortgage myth that if you have any sort of debt then you can’t get a mortgage. That’s just not true! Mortgage lenders will look at a number of different things when they review your application. When reviewing your debts, lenders will check:

• The type of debt you have

• What’s caused the debt

• If your debts are negatively impacting your financial situation

Debt to income ratio

Mortgage lenders will use something called a ‘debt to income ratio’. This ratio is a percentage which indicates how much debt you have compared to how much you earn. Different lenders will have different limits for debt to income ratios, but the lower your percentage, the more likely you are to be accepted. 

Bad credit or a high debt to income ratio, shouldn’t stop you from applying for a mortgage. Everyone’s situation is unique and there are many different factors that can affect your debt-to-income ratio.

It’s highly recommended to work with an experienced mortgage broker to help you if you have a high debt-to-income ratio, bad credit or a low credit score. They’ll look at your options and see if there's a way to help - even if you’ve been refused a mortgage elsewhere.

Credit utilisation

When you apply for a mortgage, lenders check to see how much credit you have at your fingertips, and how much of it you’re actually using. This is known as ‘credit utilisation’. Banks work this out by dividing your current debt by your available credit limit. As a general rule, it’s best to try and keep this under 30%. But it’s not game over if your percentage is higher than this, you’ll probably just need to find the right mortgage lender.

It’s a good idea to keep track of your credit report regularly to see where you stand and what you can do to improve. We recommend using Checkmyfile** - they’ve been around for over 20 years helping people to understand the credit system.

**When you click through to our affiliate links, we may earn a small commission at no extra cost to you. We only recommend sites we trust and believe in. 

Affordability

The mortgage world has changed for the better since the 2008 housing crash. These days, mortgages are stress-tested rigorously before an application is approved, and affordability checks are a crucial part of the application process. 

As part of your affordability assessment, mortgage lenders will look at your monthly debt repayments (credit cards, bank charges, loans). They’ll add these commitments to your monthly expenses and measure this against your income. Lenders want you to be able to make your mortgage repayments without struggling. If you’ve got plenty of wiggle room after your monthly outgoings, then you’re more likely to be accepted. 

What happens if I’ve maxed out my credit cards?

Some mortgage lenders might be hesitant to lend to you if you have a lot of credit cards and have used most of your credit limit. Even if you’ve been a superstar with your repayments, you’ll need to work hard to prove you’re not too reliant on credit cards to get by.

A one-off event that caused a lot of debt to mount up will be looked on more favourably than if you’re regularly overspending.

Each mortgage lender does things differently - they’ll all have their own way of checking if you’re eligible for a mortgage. Several specialist mortgage lenders will look beyond computer checklists and consider each application on a case-by-case basis. They’ll want to understand your story, not just view you as numbers on a screen.

Specialist lenders aren’t usually available to you directly as a borrower, they only work with specialist mortgage brokers. Our Mortgage Experts live and breathe the specialist mortgage market. They’ve seen it all, and will help find the right solution for you. Get in touch to find out how we can help.

Can I use a mortgage to clear my debts?

If you're planning to use your mortgage to settle your debts, some lenders may be willing to consider this when doing your affordability assessment - even if you’re a first time buyer. If they agree, you could in theory borrow more than you would if you weren't clearing the debt. Not all lenders will offer this though, and some might make paying off your debt a condition of your mortgage. 

Think carefully before securing any other debts against your home. Your home may be repossessed if you don’t keep up your repayments.

Will a Debt Management Plan affect my chances of getting a mortgage?

It's still possible to get a mortgage with a Debt Management Plan (DMP), but you'll have fewer options than if you had a perfect credit score.

To get a better mortgage deal, you generally need a good credit score and a decent-sized deposit. This can be harder to achieve if you have a DMP. Every time you make a repayment on your DMP, it can appear as an 'underpayment' on your credit file. Even though you have an agreement with the people you owe money to, your monthly repayments are generally less than the minimum required. This gets recorded as defaulted payments, and lowers your credit score further.

How to improve your mortgage chances with credit card debt

• Work on your credit score. The best thing to do with debt is to face it head-on. Find out where you stand by checking your credit report. We recommend using checkmyfile - it’s the UK's most detailed and trusted credit report. There’s some surprisingly simple things you can do to improve your credit score, including correcting any errors and updating your details.

• Get on top of your repayments. Make sure you’re paying at least the minimum on your credit cards each month. The more you can pay the better, and paying it in full is ideal. If you can’t clear the whole balance, paying a set amount each month means you’ll chip away at your balance much faster than if you just paid the minimum due. Don’t forget about your household and utility bills too - any missed payments will impact your credit score. 

• Don’t apply for credit leading up to your mortgage application. Every time you apply for a loan or credit card, a ‘hard search’ appears on your credit file. This can then be seen by any creditors you apply to, including mortgage lenders. Hard searches cause your credit score to temporarily drop, and if you’ve got lots of them in a short space of time it can be a red flag to mortgage lenders. Try not to apply for anything in the few months leading up to your application, and if you absolutely have to, make sure you’re not doing multiple applications.