Is plastic good for your mortgage prospects?

There’s a lot of debate around whether borrowers without a credit card should get one to build their credit profile. Used properly, with small, regular spending paid off in full each month, a credit card can help demonstrate responsible money management. This isn’t about getting into debt, but about showing lenders that you can handle credit well. That said, this approach isn’t suitable for everyone. If someone struggles with budgeting or is prone to overspending, it could do more harm than good. Building a credit profile doesn’t have to involve taking on new borrowing. Being on the electoral roll, paying a mobile phone contract, managing utilities in your name, and using rent reporting services can all support a creditworthy profile. Lenders want to see evidence of how you handle commitments, not just that you’ve had a credit card. In the end, a credit card is just a platform, it’s your behaviour that builds creditworthiness.

Taking out a credit card and managing it is a valauble sign to show a lender you are good risk for them. It isn't for everyone, though. Some people will see the credit limit as free money, spend freely then get into trouble. There's a reason Dave Ramsey and Grant Cardone have such opposing views. There's plenty of room in the middle to be sensible, but it requires discipline, which is what lenders are looking for.

Always use credit with caution. Unfortunately, many lenders use a ‘computer says no’ scoring system, which relies on seeing how borrowers have serviced debt. This can mean that having a credit card could boost your chances with these lenders, but only if you are seriously savvy with it. The aim is to show you can borrow and repay, in full and on time. You don’t have to spend big amounts to achieve this. In fact, lenders' systems treat you the same if you’ve borrowed and repaid £40 or £4k. The smaller the better as they do not like frivolous spending or used up credit limits. Remember any balances on credit cards will be used when calculating mortgage affordability and it will result in you being able to borrow less, so keep spending low and clear them monthly. Before you rush out to get a credit card, check your credit history. You may not need the boost, it's surprising what information they hold. If you have a phone, a bank account and are on the electoral role, you're probably fine.

Credit shouldn't be seen as a dirty word. When used wisely, credit facilities can play a vital role in building a strong financial profile, one that lenders use to assess the credibility of an application. The foundation of a solid credit profile often begins with registration on the electoral roll, along with a stable address history and consistent bank account usage. Lenders also tend to favour evidence of cyclical credit, such as responsible use and repayment of a credit card, as it demonstrates financial responsibility and, particularly for younger applicants, maturity. While having credit isn’t a requirement to secure a mortgage, it can certainly strengthen an application and improve the chances of approval.

Used correctly, a credit card can be a useful way to show lenders that you're responsible with money. If you make small purchases using a credit card and ensure you pay the balance each month, that's a positive signal to lenders that you can manage money. The danger is that people can see a credit card as free money and end up getting into debt, which is the complete opposite of what lenders want to see. We should be wary of stating that getting a credit card is a golden ticket to your dream home, as there's more than just your credit score that factors into getting a mortgage, especially as there are lenders who will accept borrowers with no credit card or credit score. If borrowers want to use a credit card, just keep it small and don't let it build a big balance.

When applying for a mortgage, credit history is one of the keys to the new home. Lenders assess how reliably you’ve borrowed and repaid in the past and, without any credit history, may see you as a blank slate, which can be worse than a low score. Credit cards are a revolving credit facility where you pay for what you use and if you don’t use it then there is no payment. The downside is that without self-control credit facilities can quickly spiral into a world of pain. But if you spend a little each month and repay in full, you’re demonstrating control over credit. Lenders can then see you can borrow and repay responsibly. As credit cards are easy to apply for and even those with no credit tend to have the ability to get a small credit facility it is a go-to when it comes to building up some form of credit profile. As a country it feels backward that we need to borrow money to show we can be trusted, and in most cases plastic credit is the easiest way to start this borrowing journey.