Credit Card v Charge Card for credit rating

AcidHouse

Hi everyone,

I'm buying my first property in the next few years, and have been looking into how credit history works against mortgage applications = confused !

In terms of 'flexible friends', the only thing I have closest to a credit card is a charge card.

I had credit cards over a decade ago, paying the minimum amounts due. During a lightbulb moment I took out a loan to consolidate the debt & cut up the cards. I've been debt free since I cleared the loan. I've had items like laptops etc since on finance. Never missed any payments due overall in my history of credit.

I chose a charge card to help keep my finances in check. It's rarely used - I sometimes need to travel for work, so I normally use the card for those expenses. This card has to be paid off in full each time I use it, by the specified payment date.

Do you think I should also get a credit card, or would a mortgage lender be happy with the charge card history?

If I had a credit card & paid it off in full each month, would I be affecting my credit score in a bad way in the eyes of a lender, as I'd effectively be treating it like I do a charge card?

I'm just conscious that I'm so well behaved with my money that it might work against me when I come to proving I can pay it back!

Thanks all
AcidHouse

takman

I don't think a charge card would be as good as a credit card. A charge card you have no choice but to pay it off each month so it doesn't really show responsible borrowing. Also you usually have to pay an annual fee for them so you can save money by having a credit card instead.

AcidHouse

Thanks takman, much appreciated

Majestic12

takman wrote: »

I don't think a charge card would be as good as a credit card. A charge card you have no choice but to pay it off each month so it doesn't really show responsible borrowing. Also you usually have to pay an annual fee for them so you can save money by having a credit card instead.

Surely it is responsible by paying in full? Whilst you cannot carry your balance forward with a charge card, remember there is no interest.

As you are now paying balances in full (and presumably have the funds) a credit card or charge card should not matter much.

System

It will make no difference for the lender and might even be classified as a credit card on your credit file...

AcidHouse

Thanks folks - I've decided to stick with the charge card. I can't bear the thought of incurring anything else on a credit card again. I'll just use the charge card a bit more often :beer:

[Deleted User]

Also, applying for a credit card will be a credit search on your file, which might harm the mortgage application.

AcidHouse

Thanks that's a good point actually, especially as I'm buying on my own - it would give the impression that I need the credit when I don't

Ben8282

billbennett wrote: »

Also, applying for a credit card will be a credit search on your file, which might harm the mortgage application.

Only if the mortgage application is to be made in the near future.


Credit card and charge card history show different things.
A faultless charge card payment history shows you to be a person who can be trusted with a card that (within reason) will allow you to spend whatever you want and always be able to pay it back on time.
If you don't use your overdraft and have no debt elsewhere, high charge card balances each month could also be interpreted as your having money to spend. Start spending heavily on the charge card and so long as you keep paying on time and are prepared to pay the ever increasing annual fees its colour will change to black sooner than you think.
With a credit card, paying it off in full every month would have much the same benefit as the charge card but with one important difference. You do not have to pay off a credit card in full every month. You pay your charge card balance in full because you have to; you pay your credit card balance in full every month because you choose to.
Personally I think it would be useful for you to have a visa or mastercard credit card or two in addition to the charge card. Very few people rely on one single card. Use the charge card and the new credit card a bit. Keep the money in your bank a bit longer. This is perfectly normal behaviour. If you are worried about your mortgage, to stop you worrying make sure the balances are both nil a couple of months before your application.

theburningcat

I'm also curious about this question.

My charge card shows as a £0 limit on my credit files with Experian and Call Credit (or rather did about a year ago), so the percentage utilisation of my credit lines were very high, which I think is a bad thing. I would hope that a lender would have a more intelligent system in place but I don't know if that's the case.

AcidHouse

Thanks Ben8282 - I'm lucky that I don't use my overdraft and also keep a float in my main account to avoid getting near the overdraft. I'll have a look at some credit cards and see what I think. I do appreciate everyone's responses on this as its a fine line between being too careful and proving you are a good risk for a lender

Theburningcat - checking out my credit score is something I need to do so thanks for the reminder - I guess a charge card is both a good and bad risk as the spending limit is at the discretion of the card issuer :huh: