Can a Credit Card Company Take My House?

Reader Question: Can a credit card company take my house away if I don't pay them?

No, a credit card company has no right to take away your house if you don't make payments, because you never agreed to put your house up as collateral when you opened the account. At least, I hope you didn't.

The bank who holds your mortgage can certainly take your house away, if you stop paying the mortgage. That's called foreclosure, and it's happening to millions of Americans right now, as a result of mortgage crisis. But a credit card company does not have this kind of right -- your dealings with them are separate from your home ownership.

With that being said, your failure to make payments on a credit card could affect your future ability to get mortgage financing or refinancing. It can seriously lower your credit score, which would make it harder to get another mortgage loan down the road, or even to refinance your current home.

When you stop making payments on your credit card account, the company will typically go through a predictable series of steps. They do it all the time, unfortunately, so it's a very systematic process:

At some point beyond the payment date, they will send a "soft" reminder about the overdue payment. This will typically come as a form letter. They may impose a penalty fee at this point to, which increases the amount you owe.

Next, they will typically send a stronger letter that warns of the account being sent to a collection agency. If they do send it to collections, it will be reported to three credit reporting agencies. This is when it starts to affect your credit score (because that score is based on the information found within your reports).

Later on, if you apply for a mortgage loan on a new house, or if you try to refinance your current home, the lender will review your credit score and other financial information. If your score took a big hit because of your failure to make credit card payments, the lender would probably decline your application.

Keep in mind that your payment history accounts for about 35% of your overall credit score -- more than any other single item. See our FICO scoring chart for a visual example of this. So while the company cannot take your house away for missed payments, they can certainly affect your life!

Hope that helps.