Taking charge: Recession spurs growth in charge cards
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.