Charge card

A charge card is a plastic (or occasionally titanium) card that provides an alternative payment to cash when making purchases in which the issuer and the cardholder enter into an agreement that the debt incurred on the charge account will be paid in full and by due date (usually every thirty days) or be subject to severe late fees and restrictions on card use.

Though the terms charge card and credit card are sometimes used interchangeably, they are distinct protocols of financial transactions: a credit card is a revolving credit instrument that does not need to be paid in full; no late fee is charged so long as the minimum payment is made at specified intervals (usually every thirty days) which carries the balance forward as a loan charging interest. Charge cards are typically issued without spending limits (although one may be punished after a late payment), whereas credit cards always have a specified line of credit that the user may not exceed for purchases.

History

In 1914, Western Union offered the first charge card, which was printed on paper, for consumers. The first official charge card was invented in 1950 by Frank McNamara, who called his card Diners Club. In 1959, American Express was the first company to issue embossed plastic charge cards.

In Europe, however, the MasterCard-affiliated Maestro brand (which is a debit card rather than a charge card) replaced the European Eurocheque brand for payment cards in 2002. Many Eurocheque cards, particularly in such countries as Austria and Germany, were charge cards branded with the Eurocheque symbol. In addition, the European Eurocard, issued as the competitor for American Express was, and in some countries (such as the Nordic countries) still is, a charge card. Therefore, the majority of MasterCards in these countries still are charge cards. Visa charge cards are also available in Europe.

Operation

Many charge cards have the option for users to pay for some purchases over time. American Express charge card customers, for instance, can enroll in the Extended Payment Option (internally referred to as ExPO) to be able to pay for purchases over $200 over time, or in Sign & Travel to be able to pay for eligible travel-related expenses over time.

Most charge cards also have a feature called No Preset Spending Limit (NPSL). While consumers often take NPSL to mean that their cards are without limits, NPSL really means that a card’s limit changes, often from month-to-month, based on factors such as consumer charging and payment history as well overall economic trends. According to a CardHub.com NPSL study, the way NPSL charge cards are reported to the major credit bureaus varies by issuer and can lead to artificial increases in credit utilization, thereby lowering one’s FICO Score.

Governments and large businesses often use charge cards to pay for and keep track of expenses related to official business; these are often referred to as purchasing cards. Some high-end retailers like Neiman Marcus issue charge cards to customers. Some American Express and Diners Club cards are also charge cards, rather than credit or debit cards like VISA and MasterCard.