Credit card debt isn’t going away any time soon.
In fact, the latest household debt report from the Federal Reserve Bank of New York found that credit card balances rose by $44 billion in the fourth quarter of 2025, reaching a record high of $1.28 trillion.
If you’re ready to buy your first home, this trend can be particularly concerning.
“Issues arising from high levels of consumer debt are amplified for first-time homebuyers as they have less savings, limited financial history, and tighter financial conditions,” says John Donikian, vice president of Best Interest Financial in West Bloomfield, MI.
By knowing how credit card debt impacts you as a first-time homebuyer, you can take proactive steps to reduce your balances, strengthen your finances, and improve your chances of qualifying for a mortgage with a better rate.
High levels of debt are problematic for first-time homebuyers for a few main reasons.
When you carry high levels of debt yourself, you automatically reduce your ability to save for a down payment and the other costs related to buying a home.
High balances and interest charges can eat into the funds you could otherwise allocate toward your down payment, closing costs, moving fees, and renovation expenses.
Unlike those who have bought homes in the past and have home equity to leverage, first-time buyers have to rely on a positive credit history and low debt levels to qualify for a mortgage.
“Large debt balances with no access to home equity that ultimately reduces lender risk can put you in a vulnerable position as a first-time homebuyer,“ says Donikian.
“Many homebuyers have extensive amounts of debt. And the payments that are associated with these various debts can hinder their debt to income ratios, making mortgage approvals tricky,” says Jeremy Schachter branch manager at Fairway Independent Mortgage Corp. in Phoenix.
Schachter points out that first-time homebuyers are often juggling excessive student loan debt paired with credit card debt, reducing borrowing power even further, and in some cases, disqualifying them from a mortgage altogether.
When you apply for a mortgage to buy your first home, lenders will hyper-focus on your credit score—and your credit card balances can make or break it.
A high score can lead to a lower interest rate that saves you thousands or even hundreds of thousands of dollars over the life of your mortgage. On the flip side, a low score may significantly increase your overall cost of borrowing.
“Ideally, you want to keep your credit card balances at no more than 20% to 30% of your maximum credit limit. For example, if you have a $1,000 limit, don’t go over a balance higher than $200 to $300. Anything that exceeds that amount can lower your credit score and make it difficult to get approved for a mortgage with a good rate,” explains Schachter.
Note that high credit card balances don’t just affect your credit score—they increase your monthly debt payments as well.
Lenders factor those payments into your debt-to-income (DTI) ratio when reviewing your mortgage application. In many cases, you won’t get approved for a mortgage if your ratio exceeds 50% of your gross income.
“Some government programs like FHA loans may be more lenient and accept a DTI ratio of up to 54%. But ratios over that amount will likely lead to mortgage denial,” says Schachter.
As a first-time homebuyer, there are steps you can take to control your credit card debt and increase your chances of a mortgage approval with a more competitive rate.
Here are several expert tips to consider before you apply for a home loan:
First, visit AnnualCreditReport.com to pull free copies of your credit reports from the three major credit bureaus.
Review each report closely and look for any errors or inaccuracies. If you find an error, dispute it with the appropriate bureau as soon as possible as it may be bringing down your score.
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“To find out your actual credit scores, check and see if your bank, credit union and/or credit card issuer offers these. Many now make them available to customers at no charge. You may also buy your FICO score at myfico.com for a nominal fee,” says Sean Fox, president of debt relief at Achieve in San Mateo, CA.
With the debt snowball approach, you tackle your smallest debts first to build momentum and stay motivated with the debt payoff process.
For the debt avalanche, you prioritize your highest-interest debts to save as much money as possible on interest.
“The ideal method depends on your unique goals and situation but both require a basic budget in place so you know exactly what comes in and goes out each month,” explains Fox.
Depending on your situation, it might make sense to pursue debt relief through balance transfer credit cards, debt consolidation loans, or credit counseling.
These options may help make the process more manageable while potentially saving you a lot of money on interest.
If you’re unsure whether you’d benefit from any of them, consult a financial adviser or debt relief professional.
You don’t need to quit using your credit cards altogether. Use cards to build a responsible payment history.
“Don’t go crazy. Keep charges low so that your credit utilization ratio or the percent of your available credit you actually use is in good shape,” says Fox.
While you might want to close old credit card accounts so you’re not tempted to use them, doing so can actually do more harm than good.
Fox recommends you leave old accounts open to increase your average credit age and in turn, improve your credit score.
“Just store these old cards away in a safe place. There’s no reason to close them,” explains Fox.
