Monday, 19 August 2019

Charge Cards Vs Credit Cards - Pros and cons

Today we are going to be looking at the differences credit cards and charge cards and some of the pros and cons of that and this was actually suggested by one of our ready. Well, currently the only issuer of general use charge cards in the United State is American Express. All the others have been designed, there are some stores that issue store cards that are charge cards rather than a credit card. They're just for use in that store they do not carry the logo of these Mastercard, Amex, or whatever. American Express is actually the only issuer of general-purpose charge cards. 

Let Get into the article

What is the difference between credit cards and charge cards?

Let's first talk about payment and credit limits

The way a credit card works is that you spend money on it and then at the end of the month you get a bill and you have typically around 21 days to pay that bill until your due date. When you get to the due date you have to at least pay the minimum payment which is normally at least $25 or a percentage, if you owe a lot of money it changes to a percentage. If you owe several thousand dollars it could be like a hundred bocks or something. You have to at least pay the minimum payment and then if you don't pay the rest, that gets rolled over to the next month, and it charges interest on it. Typically around 20%, to 15% or 25%.  If you don't pay the minimum payment then you will get hit with a late payment fee.

Chard Card

Now, on the charge card, it's the same, you spend money on it, and at the end of the month you are sent a bill or a bill is generated online on the website, and you have to pay that bill, you typically have around 21 days until the due date when the bill is due. But you have to pay it in full, if you don't pay the whole bill, even if you pay let say 95% of it, you will get hit with a late payment fee, now, with American Express their late payment fee it's a $27 and if you pay like twice within a six-month period it goes up to $38. You get hit with quite a large late payment fee even if you only missed say $1, maybe you owe $1,000 and you only pay $999 and just miss $1, you will still have to pay $38.

Amex has introduced some payment plan options for large purchases, called pay overtime, it has been experimenting with credit cards style stuff on its charge card, I guess they're finding some way to compete when there are many other charge cards around and they want to stay relevant and give people more options and compete with other issuers. 
They do have some options on their charge cards to pay overtime, but typically the basics of charge care are, you spend money on it and you pay it in full at the end of the month.

What About the Credit Limits on these Cards

With credit cards, they have credit limits. And these credit limits normally each issuer's cards will have minimum credit limits, for example, Capital One platinum minimum credit limits are $200. Chase Sapphire preferred minimum credit limit is $10,000 if your credit score income is high enough and you qualify for the card you will be given a minimum let's say for the sapphires card you are given a minimum of $10,000 credit limit on it, if your credit score and your income is higher, they can give you $15,000 or $20,000 or they will first give you the $10,000 then over time as they see you are always paying off on time, they will raise your credit.

With Charge Cards

It works differently, there is no preset spending limit and they don't call it a credit limit, they call it a spending limit, and it's not preset. Now, Amex doesn't say how they work it out but bloggers like us and some people know. The spending limit would be three times your highest balance that you have paid off in full over the most recent six month period. In 6 months let's say your highest balance was $2,000, but you didn't pay it in full, so then they would go to your next balance that you did pay in full, say $1,800 and they would times that by 3 which would get you $5,400 and that would be your spending limit. Then let's say if another month you spend $3,000 on your Amex charge card and you paid it all off, then they would increase your spending limit to $9,000 because that is three times the highest balance in that six-month period.

That is how it is believed that it's worked out, obviously, these algorithms general kept secret and sometimes change as well, but that is the current consensus on it. No preset spending limit does not mean that there isn't a limit. There is, Amex does have a tool on its website that you can use to see if a purchase will go through. So, you can use this tool and you can type in an amount and it will tell you if it'll go through or not. I don't recommend you just testing this tool going higher and higher to see where your spending limit is at, don't start at $5,000 you go $6,000, $7,000, test again and again because Amex looks at this kind of behavior and will get suspicious of you. Only use it if you actually genuinely have a purchase that you want to make and you want to see if the purchases will go through.

If you do want to make a very large purchase on an Amex charge card that is over your spending limits, and it is over the limit that you have used the tool to find, you can actually call them up, and usually, if you provide proof of funds, they will actually pre-approve that purchase.

Charge Cards Pros

They can encourage better financial responsibility because you know that you have to pay it back at the end of the month, so people generally do not spend as irresponsibly on them because they know they have to pay it back.

Credit Card Pros

Whereas credit cards do give you the flexibility that if in general, you spend responsibly but then you have one bad month let's say you're self-employ you don't have any clients that month, you could use a credit card just to get yourself through hard times and then next month you pay it back. Credit cards are more flexible, charge cards you have to pay them off every month. I think charge cards are good for businesses, especially people who are let's say business travelers who put like $5,000 business class tickets on the card, and then their company pays them back and they're able to pay it off immediately. Credit cards definitely are going to be better for people who are less secure financially, who want sometimes borrow a little bit on their card, I don't recommend borrowing on cards because the APR is so high, but sometimes you hit on hard times and you have to do it, there is no choice.

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