Many people who apply for a home loan have credit cards find out if this can harm you.
Will a credit card effect a home loan approval?
September 1st, 2010
Home loan approvals can sometimes be harrowing, particularly for first-time buyers. There are many factors mortgage lenders take into account, including the income of the buyer, the proportion of the loan that is set out as a deposit, and the value of the house. However, the most important factor, not only for first-time buyers but also those seeking to climb the housing ladder, is the buyer’s credit rating.
This is where a credit card can affect a home loan approval. Credit cards are one of the most significant elements on credit scores for non-homeowners, and so a person’s credit card repayment history can make the difference between approval or rejection for a home loan. Note that in most cases, simply having a credit card or two will not affect a credit rating. It’s a neutral factor in itself.
However, the repayment history with the credit card is crucial. If the home buyer has a consistently bad credit history, with late payments or repeated spending over the credit limit, then many home loan lenders will not approve that person’s mortgage application. The lenders who are willing to extend the loan will tend to be more expensive and less flexible in their terms and conditions. Requested deposits and insurance requirements are also likely to be more stringent. For such buyers, it’s often a good idea to engage a mortgage broker to find the best deal.
Applying for a number of credit cards in a short period of time will also adversely affect a person’s credit rating, although rarely enough to prevent being accepted for a home loan.
Never having had a credit card can ironically also be an issue when buying a house. Because a credit card is one of the easiest and most widely available types of loans, the person without a credit card is likely to be a person without a credit rating, and so will not be able to get a mortgage. If a person anticipates applying for a mortgage in the near future, it can be a good idea to first apply for a credit card and to make a number of repayments so as to build a good credit record.
If a person has merely missed a couple payments, or has firmly put their bad credit card history in the past with a constant stream of full and on-time payments, then they are likely to be eligible for a few high-street loans although some of the cheapest or most flexible deals may be out of reach.
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