3 Ways Credit Cards Could Help -- or Hurt -- You When Buying a House

Using cards wisely is key if you hope to become a homeowner.

When it comes to buying a home, you may not think your credit cards have much to do with the process. After all, you can't typically charge a home down payment or closing costs, nor can you put mortgage payments on a credit card -- at least not without using a third-party service that charges a lot of fees.

The reality, however, is that your cards could help -- or hurt -- your efforts to get approved for a mortgage. Here's what you need to know about how your use of credit cards could impact your home-buying efforts.

1. Credit cards can help you build credit to make mortgage approval easier

Credit cards can be one of the best tools to build a solid credit history and earn a good credit score. Many people can get approved for some type of card, even if it's a secured credit card. This is a type of card designed for people trying to build their credit that requires a refundable security deposit.

Once you have a credit card, you can use it responsibly, and your borrowing behavior will be noted by the credit reporting agencies. As you build up a history of on-time payments and you show you can keep your credit utilization ratio low, you'll develop a great credit record. Your responsible borrowing behavior and high credit score can open up the door to easier mortgage approval, as lenders will see you as a responsible borrower.

2. Cards could also lower your credit score, making it harder to get a home loan

Unfortunately, while responsible credit card use can increase your credit score, irresponsible use can hurt your credit record and make buying a house more difficult.

If you pay your cards late or use more than 30% of your available credit, you could end up with a low credit score. This could mean you're limited only to subprime lenders or government-backed loans, which can be easier to qualify for and offer affordable interest rates, but often come with more upfront fees than conventional mortgages.

3. Charging too much on credit cards could also interfere with your ability to get a mortgage

There's another problem you could face with credit cards that affects your efforts to buy a home: Charging too much on them could adversely impact not just your credit score but also your debt-to-income ratio.

Mortgage lenders look at your debt relative to your income to assess whether you're likely to be able to comfortably afford to pay your home loan. If your debt payments exceed a certain percentage of your income -- usually around 36% with most lenders -- then you may not be offered a home loan or may be asked to pay a much higher rate.

The last thing you want is for your credit card use to prevent you from becoming a homeowner. Be sure you know exactly how your card could help or hurt your efforts to buy a place of your own. You should be conscious of this from the time you first get your card, but especially during the years leading up to your property purchase.