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When
Are Charge Cards Better Than Credit Cards?
Many people use the terms charge cards and credit cards interchangeably,
but in fact they are different. A credit card allows you to
make purchases on credit, and allows you to revolve your credit
balance, i.e., pay less than the full amount each month and
have the remainder carry over to the following month. A charge
card, on the other hand, requires you to pay off the full balance
every month. (What used to be MasterCharge actually offered
credit cards, which may explain why they changed their name
from MasterCharge to MasterCard.) Credit cards offer greater
flexibility, so why do some people choose charge cards such
as traditional American Express cards?
Because
American Express is the only major issuer to offer charge cards
(they offer credit cards, too), we'll use their charge card
offerings as the main basis for comparison. Below are some of
the reasons you might choose a charge card over a credit card:
- You
must pay it off The most obvious reason to carry a charge
card is its very definition--you have to pay it off each month.
If you don't want to carry debt but may be tempted with credit
cards that allow you to revolve balances, a charge card imposes
fiscal restraint.
- Higher
or no credit limits Because you are paying off your debt
each month, charge cards generally allow you to put more expenses
on the card, either via higher credit limits or by waiving
credit limits altogether (although you'll definitely hear
from the company if you suddenly put $50,000 on your card
without a history of such behavior). This is an obvious advantage
for those who use credit cards for business expenses.
- Greater
rewards, although with a fee This directly refers to American
Express charge cards, all of which charge some sort of annual
fee. That said, reward programs of American Express charge
cards are often much more generous than on credit cards, from
double points to more desirable reward partners to free companion
airline tickets and hotel upgrades, to free memberships in
"elite" travel programs from airlines, hotels and
rental car companies.
- Insurance
coverage Again, this is an American Express advantage
not necessarily inherent in the concept of charge cards. However,
American Express does offer free insurance coverages that
will replace items you've purchased via your charge card,
as well as certain travel protections.
- More
comprehensive expense tracking American Express is known
for detailed expense records, allowing for easier tracking
of past charges, as well as annual records that allow for
tracking by spending category (this may be more beneficial
to businesses, but can be useful to anyone that's ever looked
at their credit card statement and said "Who is Pers
Tlv Srvcs that I paid $79.95 to?")
- Prestige?
While a charge card won't make you a better person, some people
do get a certain satisfaction out of flashing an American
Express charge card, as it may suggest a certain credit level,
business authenticity and other nebulous grandiosity that
potentially could impress someone :)
Whether
a charge card is better for you than a credit card depends on
your personal needs, but if you now understand the difference
between the two, you're one step closer to deciding.
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