Your mortgage application – How to manage credit cards and overdraft

Your mortgage application – How to manage credit cards and overdraft

The success of your mortgage application can be affected by how you handle your credit card and/or an approved overdraft facility. Here’s how to manage them so you don’t get tripped up.

Firstly, there is nothing wrong with having a credit card or an approved overdraft facility. In fact, these can be really handy and, at times, important.
The best way to view them is as emergency money.

Managing your credit card

Some people use a credit card for all their monthly discretionary spend as it helps them avoid certain transaction charges that you might incur on your current account with regular tapping, etc. This is absolutely fine, as long as you’re then clearing it in full each month. This is a good use of a credit card.

A not so good use of it is using it for discretionary purchases and letting the balance roll up each month, whereby you’re spending more on it each month than you’re repaying. This can become a cycle of borrowing that is tough to get out of.

  • Only spend on it what you can afford to repay
  • View it as borrowed money, as that’s exactly what it is
  • Ideally clear it off in full each month
  • If not clearing it off each month, ensure you’re working the balance down each month
  • Carrying a credit card balance is one of the most expensive ways to borrow money (typical interest rate could be as high as 20%+ vs 7%+ on a loan)
How to handle an overdraft

As with the credit card, there is nothing wrong with having an approved overdraft facility. But this really is emergency money …

An example of where it is used well is when you have had an unexpected expense and it sends your current account into an authorised overdraft balance, which is then cleared once you’ve been paid next.

An example of when it is not used so well is when you appear to be ‘living’ in your overdraft between pay cheques.

Again, this is a cycle of borrowing that becomes habitual and tough to break out of.

  • Only use it when needed
  • View it as borrowed money, as that’s exactly what it is
  • Avoid using it every month as it may appear that you are reliant on it
  • Don’t exceed your approved overdraft limit. This can create unpaid or referral costs, which would be a negative in your mortgage application


For the full set of tips on making yourself mortgage ready, download our Top Tips for First Time Buyers guide – 17 pages of knowledge from years of helping people get the mortgage they want.
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