Do You Know Your Credit Card Can Shatter Your Dream of Owning a Home?

If you are dreaming of buying a house, having a Credit Card can impact your Home Loan eligibility and shatter your dream! Yes, you read it right. Having a higher Credit Card limit can be the reason for rejection of your Home Loan application. That is because lenders (banks and non-banking financial companies) assess borrowers’ repayment ability based on their credit limit when evaluating their Home Loan application. Not just high credit limit but even if you have multiple Credit Cards, default payments or huge Credit Card debts, your Home Loan application may face rejection.

When you apply for any loan, lenders consider various factors to assess your repayment capability to analyze how much risk is involved in lending your money. Your age, income, existing loans, collateral and credit history are some vital factors considered by each lender.

Below are some scenarios where your Credit Cards have a connection with your Home Loan eligibility:

1. High Credit Card Limit Means Higher Debt Level

As per financial experts, having a high credit card limit can prove to be a disadvantage when you apply for Home Loan as your credit limit determines your debt level whether you pay Credit Card bills regularly or not. Hence, before you apply for a Home Loan, contact your Credit Card issuer and ask him to lower your Credit Card limit to improve your chances of getting loan approval.

2. Owning Multiple Credit Cards Add up to Your Overall Credit Limit

Owning multiple Credit Cards (usually more than 5) is not a good idea as your each Credit Card application detail is recorded in your credit record. Whether your Credit Card is in use or not, it will be added to your overall credit limit, decreasing your chances of Home Loan approval thereof. It is ideal to have one or two Credit Cards and cancel all others as soon as possible. If you are planning to apply for a Home Loan, don’t apply for a new credit card for at least one year prior to your Home Loan application.

3. High Credit Card Debt Means More Liability

Your each Credit Card spending adds up to your overall Credit Card debt every month. Although you can’t cut down your Credit Card spending completely, you may control it. Usually, lenders assume that cardholders spend around 3-5% of their income on towards Credit Card debt monthly. Higher Credit Card debt means you have to pay more, resulting in reduction of the amount you can pay for Home Loan.

Here are a few things you can do before applying for a Home Loan to improve your chances for approval:

• Call your Credit Card provider/ bank and ask them to reduce your credit limit.
• Cancel all those Credit Cards that are not in use.
• Build and maintain a good credit score.
• Do not try to hide any facts related to your credit history.
• To reduce your Credit Utilization Ratio, pay all pending bills using your savings pool.
• Avoid defaulting Credit Card payments in any case; doing this will have a drastic impact on your credit score.

These were some of the reasons how your Credit Card can have a huge impact on your Home Loan Eligibility. Having a Credit Card can be beneficial in many ways if used sensibly. However, a careless Credit Card behavior can become a hindrance to buying a dream home with Home Loan. Hence, keep your Credit Card usage under vigilance much before you apply for a Home Loan.