The impact of using 99% of your available credit before applying for a mortgage

Dear Experian,

I was looking at my credit report online and it showed that I am using 99 percent of the credit available to me. What does that mean? Also, I know that I have one student loan that is at almost $60,000. How much effect is that going to have on me if I am trying to get a home loan?



Dear RAH,

Your utilization rate is simply a measure of your total balances to your total credit limits. A high utilization rate is a strong indicator of credit risk, and you have an extremely high utilization rate.

Using “99 percent” of your available credit means that you are probably charging your credit cards to the limit. It suggests you are stretching your ability to repay your debts and that any financial hiccup could cause you to default.

The large student loan debt contributes to your overall debt-to-income ratio. While income is not a part of your credit history, lenders often consider it when assessing your ability to pay, especially when applying for a mortgage.

You say that you have one student loan for $60,000, but it isn’t clear if that means you have other smaller loans as well, which would also figure into a lender’s decision.

With such a high utilization rate and large student loan debt, you could have trouble qualifying for any new credit, particularly in today’s more stringent lending environment.

Before applying, you should first reduce your existing debts. It will be essential to lower your overall utilization rate to qualify for desirable loan terms, or perhaps to qualify at all.

Thanks for asking.

- The “Ask Experian” team

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