One of the nice (and most dangerous) things about credit cards is the financial flexibility it gives you to buy things now and pay for them later. But because you’re using the bank’s money to make a purchase, do you actually own what you buy with a credit card if you haven’t paid your bill yet?
If you’re not paying your credit card bills, you’ve got bigger problems than worrying about the credit card company coming after all the stuff you bought with their money. With unsecured debt (like a credit card), it’s generally the money creditors want, not the things you got with it.
“In more than 20 years of working with people to resolve credit card debts, I have yet to come across any ownership challenges from the credit card issuers, or the debt collection agencies they place accounts with,” Michael Bovee, founder of the Consumer Recovery Network, said in an email. “You can be sued for unpaid credit card debts, and the result of that may be a money judgment. That judgment is generally seeking cash, and not physical items you purchased.”
Judgments — and all the negative credit events that may lead up to them, like missed payments, charge-offs and collection accounts — seriously hurt credit scores, and they can remain on your credit report for many years, especially if they go unpaid. A judgment can also result in wage garnishment, so you really don’t want to get to that point, if you can help it.
Unsecured and secured debt differ in that secured debts require collateral — an asset the creditor can repossess if the borrower fails to repay the debt.
“Credit card banks do not place a security interest in the items you purchase with their cards,” Bovee said. “It would show in your card member agreements if that were the case.”
Think of car loans and mortgages: If you don’t pay your loan, your lender will likely repossess your car or foreclose on your home. But with credit cards and other unsecured debts, like student loans and personal loans, the agreement between lender and borrower doesn’t specify collateral, because there’s not always something to repossess. What are they going to do, take your diploma? And it’s not like they can repo the food you bought on credit and already ate.
Ideally, you’ll eventually pay off your credit card bills, so there wouldn’t be a question of ownership. (If you’re working toward that $0 balance, this free credit card payoff calculator can help you figure out how long it will take you to get there.)
One way to avoid the slippery slope of credit card debt is to keep your credit card balances under control, which can also help you maintain good credit. The less you use of your available credit the better: Experts recommend using less than 30% or, ideally, less than 10% of your overall credit limit if you want good credit. You can see how your credit card use affects your credit standing by getting a free credit report summary, updated every two weeks, on Credit.com.
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