Whether you are using accredit card or not, knowing about its alternatives is important. If you have a credit card, you might have heard about the term charge card. The main point to mention here is that charge card and credit cards are not the same. Basically, charge cards looks more like a credit card made up of plastic however, the functioning of the card is that you can withdraw money as well as pay for goods through this card. The bill of these cards also needs to be cleared up every month unlike a credit card in which the balance can be settled overtime for which interest rates are applied. Common cards include Diners Club card and American Express along with some gold cards.
Features of charge cards
The first and the foremost feature of these cards is that the balance should be cleared in full every month. If you are using a credit card and is paying its bill regularly and on time then this card is similar to that. By settling the balance every month you can maintain your budget easily. However, if you are unable to pay the bill in full and on time, then you will be charged with penalty interest which is much higher than what is charged in regular credit cards.
There are many benefits associated with charge cards however, these benefits greatly depends upon the type of card obtained. Typical privileges include free travelling insurance, access to executive lounge in airports, etc. these cards are an excellent option for those who travel frequently and wants to be comfortable wherever they are. Many cards also offer rewards in the form of points which are obtained from every dollar spent on the card. This is a great way to save some extra on your total money spending.
The next feature of charge cards is that they are not governed with pre-set limits which mean that you can spend on whatever you want to. This is a good way to pay off large amount every month however, if the cardholder is not disciplined, it can be disastrous. You will pile up huge amounts of debts which will be unable to pay every month. This feature is considered to be helpful in an emergency situation as it offers more flexibility.
Not accepted always
The biggest drawback of these cards is that they are not widely accepted as compared to regular credit cards. The reason is that they charge a higher percentage to businesses which results in their unwillingness to purchase through these cards.
Charge cards do not improve your credit utilization ratio which is the amount of credit available as against the amount of credit used. Since no balance is available, improvement in credit utilization ratio is not possible. This in turn affects the overall credit score.
Charge cards have changed the way of spending money. These cards are convenient in making purchases however; prior to applying for these cards, consider which option is best for you and then make sure that you will use the card wisely.