Charge cards are electronic credit cards that charge no fees. However, they require that you make prompt monthly payments.
Why Do People Use Charge Cards?
People use charge cards for the following reasons:
No Cost Incurred
No fees are charged for using charge cards.
Easy Payment
Charge cards require that you make monthly payments. These are made easy by linking the charge card to your bank.
No Money Down
You do not need to put down any money when applying for a charge card.
No Interest Charged
Interest is charged on credit cards only if you fail to make timely payments. Generally, no interest is charged on charge cards.
Larger Credit Limit
A larger credit limit allows you to access more money without paying fees. However, the credit limit is limited by the bank and can be increased if your credit score improves.
Bonuses and Rewards
Some charge cards come with bonuses or rewards. These bonuses and rewards can include cash back, gift cards, or airline miles.
Personal Factors
Do charge cards build credit? Yes, you can use charge cards to build a good credit history and improve your credit score. Credit history and credit score are essential because they will allow you to get a good loan in the future. The experts at SoFi state, “Because charge cards don’t have a pre-set credit limit, it can be difficult to determine if a card holder is at risk of overspending — so neither FICO or VantageScore include charge card information when calculating a person’s utilization rate.”
Who Uses Charge Cards?
Charge card usage has become more popular in the United States because it is easy to use and gives you access to an increased credit limit. However, some people do not use charge cards because of the following reasons:
High-Interest Rates
Charge cards have a high-interest rate, especially if you do not pay your payments on time.
Lack of Benefits
Some charge cards do not offer any benefits. For example, some charge cards do not offer cash back or rewards.
Annual Fee
Some charge cards have an annual fee that averages $500. This fee is high as it translates to $42 per month. The annual fee is charged even if you do not use the charge card.
Hefty Fines on Late Payments
Some charge cards have a late payment fee, which is higher than other cards’ standard late payment fees.
Credit History
If you do not have a good credit history, you may not be able to apply for charge cards.
When Should I Use a Charge Card?
You should use a charge card when you need to make purchases that you can’t pay in full at the time of purchase. For example, if you need to buy a computer, an expensive camera, or some other expensive item but have no credit cards or have insufficient credit to buy such an item.
You should not use a charge card if your regular spending is less than your available income. You can also use a charge card when you want to pay off debts that are in arrears. For example, if you are having trouble paying off your home loan (mortgage) and want to stop making payments, pay it off in full by using a charge card. However, this will result in higher interest and higher monthly payments.
