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How Much Credit Card Debt Is OK When Buying a Home?

What you'll learn: How credit card debt and credit card utilization impacts buying a home


While credit card debt has decreased overall in the United States recently, according to the New York Federal Reserve, you may still be one of the millions of Americans who has credit card debt. Credit card utilization, also known as credit card usage, is the amount of credit you're using compared to your available credit, and it factors significantly into most credit scores.

For example, your FICO® scores are calculated using much of the information on your credit reports. Credit usage accounts for 30% of these scores.

Rod Griffin, Senior Director of Public Education and Advocacy for Experian, explains, "The most important thing to know about credit utilization is that you need to keep your balances as low as possible to maximize your credit scores."

Here’s a look at points to consider if you plan on buying a home when you have credit card debt.

What credit score do I need to get a mortgage?

More than one credit score is taken into account, so the actual scores you need depend on the scoring model your lender uses. For instance, PenFed uses 620 credit scores in most cases when reviewing your application and considering mortgage approval. More important than understanding each of the hundreds of credit scores is knowing your credit history, which appears on your credit reports.

According to the New York Federal Reserve, "the median credit score of newly originating borrowers increased in the first quarter [2020] for mortgages, to 784, up 11 points from the previous quarter and 25 points from a year ago [2019]." This report is based on the Equifax Risk score 3.0.

Various options are offered for mortgages, including conventional fixed-rate mortgages, VA home loans, and jumbo home loans. There’s no magic number when it comes to the credit score needed for mortgage approval, but generally, a lower amount of credit card utilization and lower amounts of credit card debt may potentially help when you apply for a mortgage.

What should I do if I have credit card debt?

"Paying down your credit card balances will help improve your credit scores relatively quickly. When you plan to buy a home, reduce credit card spending, and pay down your balances as much as possible. Save unnecessary purchases until after you have the house keys in hand. Ideally, you should pay your balances in full each month. The lower your balances, the better for your credit scores," shares Griffin.

Preparing as early as possible may help make reducing your debt seem more manageable, so it's best to start a year or so before looking to request preapproval or approval for a mortgage.

Lowering your credit card balances can help reduce your credit card usage, given you're not taking on other types of debt at the same time or racking up charges on your cards after you pay off the debt.

Reducing your credit card utilization, making timely payments, and using credit responsibly are crucial factors in maintaining a solid credit history and working toward credit scores that’ll show a potential lender you're likely to pay your mortgage on time.

What other factors might help you get a mortgage?

Credit card utilization is a significant factor in credit scores that can impact your ability to get a mortgage or get a lower interest rate. Other factors that also impact mortgage approval and the interest rate offered often include:

  • Credit history
  • Income
  • Amount of your down payment or Loan-to-Value ratio
  • Home purchase price
  • Property type
  • Occupancy — whether you'll be using the home as your primary residence or an investment property

In general, it's also a good idea to not apply for any other new credit like an auto loan, new credit card, or student loan when looking to get a mortgage. New credit is a small factor in most credit scores, so lenders may see recent applications or accounts on your credit report as an added risk to default on your mortgage

How long does it take for my credit card payments to appear on my credit report?

According to Experian, most lenders update your account information once a month, so you should allow 30-45 days for credit card payments to show on your credit reports. As previously mentioned, the more time you give yourself to pay down credit card debt, the more time you’ll have for your positive actions to help show that you’re a responsible borrower.

How do you apply for a mortgage once you pay down your debt?

You can get started with preapproval and pull a copy of your credit report to make sure you don't have surprises when you apply for a mortgage. You'll also need to compile paperwork, including your W2s and any tax forms, recent tax returns, and bank account statements.

You can also learn more by researching different types of mortgage options and speaking to your loan officer.

To learn more about PenFed mortgages or what option may be right for you:

For more information about PenFed Mortgages:

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Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5


1Rates are updated daily at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on discount point, which equals percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.