Can a Charge Card Affect your Mortgage?
A charge card is a way to pay to pay for purchases, however instead of the card being directly linked to your bank account, like a debit card for example, the user is indebted to the charge card issuer. By a certain date, at least once a month, the charge card holder is required to pay back the card issuer debt they have incurred. Additionally, if these debts are not paid on time, the user is usually subjected to late payment fees.
Although it may seem that charge cards and credit cards are the same thing, there are actually distinct differences in the financial transactions they allow. For example, a credit card issuer will not require the user to pay off their entire debt every month – only a minimum payment is required. As long as this minimum payment is met by a specific date, then there will be no late payment fees. Whatever is left to pay on the account is subject to interest. However when it comes to charge cards, there is no spending limit.
The History of Charge Cards
The first ever charge card was issued by Western Union in 1942, and it was accompanied by a new form of paper documentation at the time. Shortly after, department stores also introduced the revolutionary new way of paying for goods, however unlike the Western Union cards, store cards had spending limits. With the help of Diners Club, charge cards were introduced into the travel and entertainment sectors, and the amount of stores that the cards could be used in increased dramatically
From authorizing each transaction to chasing up collections, Diners Club were responsible for the cost of setting up the card account, and this allowed smaller stores to compete in the lending credit market with the big stores. American Express finally entered the charge card market in 1957, and was also the first credit company to provide users with the iconic plastic credit card we see today. Recently however, the price of your mortgage could be affected by the debt incurred by charge cards.
Using Charge Cards
One of the best things about charge cards is that they let the user pay for purchases over time, with American Express offering a service that extends the payment period for items over $200. Furthermore, if these expenditures are travel related payments, then the user could benefit from reduced interest fees.
Although many people believe that charge cards have no spending limit, it’s more true to say that this limit changes over time – usually from month to month. This limit will be based on the user’s previous payment history, the amount of the payments and the how frequently they use the card. Worryingly however, mortgages lenders are now evaluating loan applications on charge card history, whereas when charge cards were first introduced, applications for mortgages were rarely affected.
Category: Mortgage
Great article! Paying for purchases over time is a big plus to charge cards!