How Do Charge Cards Affect Your Credit Score? | CreditShout

How Do Charge Cards Affect Your Credit Score?

By Kevin / September 24, 2009

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Charge cards are similar to credit cards but must be paid in full each month when the statement is received in the mail. Unlike credit cards, charge cards have no pre-set credit limit, no interest rate and no minimum payment. So how do charge cards effect your credit score considering your score is based partly on credit limit? The answer is actually very simple.

Charge cards don’t hurt your credit score, assuming they’re used correctly and don’t become past due. When purchases are made with a charge card they’re approved based on a number of factors, including payment and spending history and the customer’s credit record in the past. The cap for each customer changes often.

Because there is no spending limit to report to the credit bureaus a high credit is instead reported as the individual’s highest monthly balance to date. While it may seem this would have a negative impact on your credit score it doesn’t affect it at all. While the account remains reported as open the reported high credit will have no effect.

Another factor is the debt-to-credit limit ratio which plays a major part in a person’s credit score. The good news is revolving debt is the only thing looked at here, such as credit cards. FICO scoring models currently in existence don’t even register charge cards in this equation.

In general this is a good thing for consumers. Past scoring models of FICO included charge cards but it was found to skew credit scores unfairly. Basically, as long as charge cards are paid on time they won’t have much impact at all on your credit score.

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