Taking charge: Recession spurs growth in charge cards

Americans love their plastic, but a lot of us got into trouble during the boom years, abusing the seemingly infinite spending power our credit cards gave us. Now, according to the Wall Street Journal, a new kind of card is gaining prominence in the personal-finance landscape: the charge card. Charge cards differ from credit cards in that they require users to pay their balance in full each month as opposed to accruing a revolving balance.

Charge cards aren't new, and they never really went away. They did fall out of favor in recent years, though, as consumers lured by low interest rates and a sense of wealth brought about by rising home prices eschewed them in favor of credit cards.

Now, in a much grimmer economic landscape, Americans are looking for spending options that come with a modicum of built-in discipline, while card companies are searching for lower-risk products to offer consumers who feel burned by the high interest rates and fees typical of credit cards today.

Historically, charge-card offers have made up only 2 % of all direct-mail advertising, according to the article. Lately, though, that number has shot up to 8%. Although card issuers make less money from charge cards than they do from high-interest credit cards, they're counting on customers remaining with them even after the economy gets better again, says one expert interviewed by the Journal.

JP Morgan Chase & Co. is advertising a charge card -- its first offering in the category -- called Ink Bold, intended for small business owners. American Express is the best-known and largest charge-card purveyor. It has just rolled out a new card called Zync for young adults.

Charge cards generally offer rewards programs, but on the down side, most carry annual fees. How they affect your credit report is a mixed bag. If you have no credit history and can't get a conventional credit card, they will help you build that history; however, because there is no pre-set spending limit on most cards, some issuers report a card's balances as the limit. To the computers at the credit-reporting companies, this looks like you're using all of your available credit if you charge approximately the same amount each month. This, in turn, can pull down your score -- although only by a little bit if you have several other cards or accounts, as most of us do. According to the Journal, newer reporting methods have fixed this problem, but there is a chance that a lender still uses the old reporting methodology.

Bottom line:
Charge cards are effective, especially if you want a product that forces you to be a little more disciplined in your spending. However, you need to take into account the annual fee and the potential -- although minor -- impact it could have on your credit score to decide if it's the right product for you.
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