Charge Cards

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Wikis > Charge Cards

Definition

Charge cards provides a payment method that allows the cardholder to make purchases which are paid for by the card issuer, to whom the cardholder becomes indebted. The cardholder is required to repay the debt in full to the card issuer by the due date outlined in the contract, which is usually on a monthly basis. If the cardholder does not meet this requirement, they are subject to late fees and restrictions on further card use.

Charge cards are a great source of funding for a startup’s short-term purchases that can be repaid within the limited, predetermined amount of time. In other instances, businesses will utilize a charge card in order to self restrain their spending habits as the must be paid in full by the due date, which again is typically every month. Issuers typically offer some sort of rewards program or other benefits such as spending tracking and online banking, though every issuer operates differently. D

The main difference between a credit card and a charge card is the lack of interest rates and spending limits offered by charge cards. Charge cards have no interest rates because the borrower is required to pay off the entire balance on the card each month. There is no option to pay the minimum amount as with a credit card. There are however, fees associated with failure of payment.

Use

Typically, charge cards allow cardholders to pay for their purchases over a period of time as a form of financing. For example, American Express charge cardholders can opt into the Extended Payment Option allowing them to pay for expenses over $200 over a longer period of time.

Charge cards typically have a clause titled No Preset Spending limit. Many cardholders believe this to mean that their charge cards do not have ceiling as far as how much they can charge. However, this is not the case. The No Preset Spending Limit really means that the limit on any cardholder’s charge card is subject to change, even from month to month, based on a multitude of factors such as spending habits, payment history and economic trends in general. Furthermore, as charge card issuers reporting habbits to the major credit bureaus vary per issues, changes in credit utilization may occur artificially pending the reported credit scores.

Lastly, large businesses and even government departments will often use charge cards to pay for and keep track of expenses similar to how an individual will use a personal debit or purchasing card. Additionally, some high-end retailers like Nordstroms will issue charge cards to customers.