Your credit card debt absolutely plays a role in whether you're approved for a mortgage, but just because you have some debt doesn't mean you have no shot at getting approved. Credit debt can affect your credit score in multiple ways; it also affects the debt-to-credit ratios mortgage lenders use to determine how much you're able to borrow.
If anything can drag down your credit score, it's a bad payment history. In the FICO credit score, your payment history is the single largest factor, accounting for 35 percent -- more than one-third -- of your credit score. So, if you've been delinquent or defaulted on your credit card debt, your score goes down and lenders are more likely to deny your mortgage applications. Of course, if you've been diligent about making at least the minimum payment on your credit cards all the time, this could actually boost your credit score, improving your chances of approval.
In the credit score factors, amounts owed is right behind your payment history, counting for 30 percent of your credit score. This category not only looks that the size of your debt -- having large balances worries creditors that you aren't able to take on additional debt like a mortgage -- but also your debt-to-available credit ratio. This ratio measures how your credit card debt compares to your credit limits. For example, a $1,000 balance could signal trouble when your credit limit is only $1,500, but that same balance on a $10,000 credit limit isn't nearly as troubling to lenders.
The back-end ratio refers to the ratio of your prospective mortgage expenses plus your existing debt payments compared to your monthly income. Debts include the minimum monthly payment on your credit card and mortgage expenses also include taxes and insurance. Most lenders don't want your total debt payments exceeding 36 percent of your monthly income. For example, say you make $3,900 a month: a 36 percent back-end ratio means your total debt payments can't exceed $1,404. If your minimum credit card payments total $504 per month, your mortgage costs can't exceed $900 per month.
Your credit card debt can also be a plus on your credit score in two other categories, helping you to get approved. First, 15 percent of your score is figured based on how long you've had credit, so the longer you've had credit cards open, the better. Second, your mix of credit accounts for 10 percent of your credit score, so the fact that you've used credit cards also helps. Of course, you don't need to carry a balance to get the benefits of using a credit card on your credit report, so there's no credit scoring reason not to pay in full each month.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."