The prospect of buying a home is an exciting one, and likely one of the biggest investments you will make. With less of us buying property in recent years however, that dream can seem a long way off for some — especially if you’re unsure of your chances of getting a mortgage.
Money lenders use a variety of criteria to assess your suitability and understanding what they are can improve your outlook. One factor reviewed is your credit card history. As a type of credit, it affects one of the most important elements in your mortgage application — your credit score.
But is it possible to buy a house without a credit card? The short answer is yes, but it makes it more difficult. Find out the different effects that having or not having a credit card can have on your prospects.
Your credit report is effectively used by lenders to tell a story of your recent history with debt and predict your ability to cope with mortgage repayments in the future.
For first-time buyers, credit reports can be a little trickier. Typically, being younger, first-time buyers have less evidence of stable employment, less money saved, and not as much history of dealing with credit. Not having a credit card makes it even more difficult for lenders to judge if a person can be trusted with a mortgage. However, it could be worse…
No credit is better than low credit
Having no credit score doesn’t mean you’ve handled debt badly; it means you’ve avoided it. A low credit score on the other hand suggests that you’ve struggled financially in the past, and putting those wrongs right is more difficult than starting from nothing.
So, while having a credit history is useful for lenders, it’s better to have avoided credit cards than racked up debts you can’t afford to repay. There are other ways you can prove your trustworthiness.
Your payment history
Credit cards are just one of many ways to manage your finances. There are other repayments you can highlight to help you get a house, alongside factors such as your personal income and stability.
If you have positive history with other types of credit such as loans, this provides evidence of your ability to make repayments on time and in full. Different lenders assess different criteria, so demonstrating your ability to pay for things like rent and utilities could help you out too.
Why it helps to have a credit card
Having a credit card is an opportunity to build positive credit history. It’s also one of the easiest types of credit account to get approved for and putting regular and affordable expenses on a credit card is a way of establishing your ability to handle credit without going into debt.
If you do have other types of credit accounts, adding a credit card to the mix also shows credit diversity. Mortgage lenders like to see that you can handle different types of credit as this gives an even greater prediction of your ability to handle mortgage repayments on top.