Can Unpaid Credit Card Prohibit Me from Getting a Home Loan?

When planning to buy a house for your family or a property for investment, one should look into his financial status to make sure he can afford the purchase. Financial status is one of the major factors that allows you to purchase a property. Most lender like banks look into the person’s capability to pay off debt before they approved any home loan application. 

But what if you have an existing unpaid credit card, will that show during financial capacity evaluation and affect your home loan application?

What do lenders look into a home loan application?

Are you planning to buy a property soon and wondering if an outstanding credit card debt will affect your home loan application? One of the main factors that lender will look into is your financial capacity. This includes your income, credit history and your debt service ratio. Your income will tell the lender how much you’re earning and they can compute your debt service ratio from it. Debt service ratios is the portion of your monthly take-home pay that will go to your monthly amortization. This will let them know that you have enough money to cover for you monthly needs and expenses will be able to pay for you monthly amortization is approved. Lenders also looks into credit history which is a record of how a person managed his or her credit in the past. These includes total debt load, number of credit lines and timeliness of payment.

READ: How to be Financially Prepared to Buy Your First Home

Will the lenders see unpaid credit card history from another bank?

Yes. Lenders like banks and non-banking financial institutions provide information to the credit bureaus or offices to make a the information into one credit report. This credit report can be looked up by any of the lending institutions. This financial background check allows them to see any undisclosed information like unpaid credit cards.

READ: Credit Score – Do we have it in the Philippines?

Why is credit card payment history important when applying for a home loan?

Credit card transactions is one of the easiest to build a credit score and credit history. But when not managed well, it can also pull you down when applying for a loan. Lenders look into history of credit card payment to decide whether or not they will approve a loan application or not. This will tell them the ability and timeliness of the person to pay his debt. So when you have an outstanding unpaid credit card payment, this will show up when they are evaluating your credit history and will tell them the risk involved of not being paid back the money they will lend you to buy your home.

READ: Is it okay not to pay your credit card debts?

Can I still apply for a home loan even though I have an existing unpaid credit card?

The best thing to do is to go over your credit history and check for any existing unpaid credit card or any outstanding debt you have. Settle any existing debt first before applying for another loan. The reason while you need to settle a debt first is because any existing debt is considered in your debt service ratio. If the ratio shows that you have more debt than funds for your basic necessity, it will tell the lender that you do not have extra money to pay off the amortization if they approve your home loan application. When you pay off your debt, it is best to work on your savings to show your lenders that you have fixed your financial difficulties and is now ready to take on the responsibility of pay for a home loan to get your dream house.

READ: Tips to Get You in Good Financial Shape to Buy Your Dream Home