You must remember the housing boom of 2003 when the American Express company first offered a hugely successful program for tenants to pay their rent using a credit card. It is not difficult to assume why the program was readily accepted and even got extended into the mortgage industry. It is the credit card reward points that a customer is entitled to using his plastic.
However, right from the start out of the rent and mortgage payment program, its consumer category was clearly specified. Only customers with high credit scores and strong credit history could take advantage of it. But the actual situation is a bit different.
So far, it's the Visa and American Express credit card companies that are expanding the rent and mortgage payment program but their aim is to involve more banks to participate. With the ever increasing rent prices, it is predictable that tenants would like to use their credit cards to pay monthly bills.
And if they get something back for the credit card use, be it rewards points or cash back, the value of the program doubles. Convenience and benefit - that's what most cardholders are searching for and the new program provides.
Now, is it possible that a subprime credit consumer could also take advantage of the program? Mr. Dawson said that with his current financial troubles coupled with doubts as to the ability to pay his next bill, he would pull out his credit card as an emergency tool.
Due to some recent troubles, Mr. Dawson, a Citibank customer, has turned to his credit card as the basic tool to pay for everyday purchases and he knows it is no good. The man realizes perfectly well that if he, being cash-short, uses his plastic for a short-term relief and fails to pay for the credit card bill in full or on time, he will sink into unmanageable credit card debt.
Not all cardholders are as responsible and thoughtful as Mr. Dawson, however, and though the companies do not allow the option to pay rent with a credit card to subprime customers, the latter still use their plastics for the purpose.
How do they trick the companies so that they cannot control the transaction? Some poor credit customers are smart enough to make cash advance on their credit card and pay rent or mortgage this way.
Of course, the cash advance entails high interest rate and fees, further damaging credit rating and eliminating the ability to earn rewards completely. Customers, who resort to cash advances to pay their rent monthly bills, evidently cannot pay them out of their income, so it is natural to assume that they can default on their credit card bill later on.
So far, banks and credit companies cannot control and forbid poor credit cardholders from paying rent with a card but people should realize that such a step will only make things worse.
However, American Express and Visa representatives admit this program could also be of great help for good credit renters and homeowners enduring temporary financial problems due to unforeseen expenses or sudden illness.
These renters and homeowners should know for sure that they will be able to pay for the credit card bill out of their income and will not accumulate debt.
According to the results of the study conducted by a financial services research group, credit cards outstanding balances steadily grow which may be the result of using credit cards more frequently or making more substantial expenses like rents or mortgages.
Financial advisors insist that if you use a credit card to pay rent not for the pure purpose of rewards but as the only means of preserving your home, you may get into serious credit troubles.