Will my credit card debt affect my credit rating for a mortgage?

Q: I'm saving for my mortgage and have approximately £7,000 saved as a deposit. I also have £7,000 on a credit card which charges 0% interest for the next 18 months. I have seen conflicting advice - some saying it's not advisable to have no credit at all on a credit card, whilst others say it will affect the amount I'll be allowed to borrow.

 

The two approaches that you have seen are actually both correct in their own way and that’s because they effectively answer two different questions.

When a lender receives a mortgage application, most will check the credit file and credit score the applicant. Checking the credit file will reveal how well the applicant manages any credit. That’s why you will have seen that having some credit is not a bad thing, as it gives a lender a track record to look at in order to help profile and score a potential borrower.

Assuming that a borrower has an appropriate score and a clean credit history, the lender will also have to assess how much they may be prepared to lend. Each lender will have its own affordability criteria but lenders will ask questions around not just the level of income but also expenditure.

Ongoing committed expenditure will therefore be factored into that calculation. Loans and credit card payments will feed into that calculation, so could certainly impact on the maximum borrowing amount.

In other words, having a reasonable, well managed credit card debt should not in itself result in an application being declined. However, if you are running an ongoing balance there could be some reduction in the amount of borrowing available depending on affordability.

Some lenders have online affordability calculators that might help you see how it could affect you, but it would really make sense to take advice on your own circumstances, especially given the fact that different lenders have different affordability criteria.

Answered by David Hollingworth, London & Country

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