Understanding Credit Limits and Credit Card Usage
Your credit card’s credit limit is the maximum amount you can charge to the card. Maxing out your credit card means you’ve reached your credit limit. A good credit history can help you get a mortgage, but maxed-out credit cards can hurt your chances. Credit utilization refers to how much of your credit you are currently using.
Impact of Maxed-Out Credit Cards on Mortgage Approval
Maxed out credit card balances could lead to you being denied a mortgage or a car loan. When you make an application for a loan, the bank will check to see how much of your available credit you’re using. If your credit card balances are too high, banks take that as a sign you already have more debt than you can handle.
Managing Credit Card Debt When Buying a Home
When evaluating your mortgage application, lenders will look at your debt-to-income (DTI) ratio and credit score, so aim for a strong 43% or less DTI and good to excellent credit. Some debt is acceptable when buying a house, but it can impact your ability to get a mortgage. Your credit card debt will usually not prevent you from getting a mortgage if the payments do not take up a lot of your monthly income. If you have credit card debt combined with another kind of debt taking up a lot of your monthly income, you could run into issues with mortgage eligibility. However, credit card debt alone will generally not prevent you from getting a mortgage.
Considerations When Applying for a Mortgage
While no strict limits exist for credit card debt amounts before buying a home, experts agree you should minimize balances. High debt hurts your credit score and debt-to-income ratio, raising mortgage costs and reducing home loan eligibility. Consider paying down debts substantially or eliminating them entirely before applying for a mortgage to avoid obstacles.