Bankruptcy

Back to Basics with the AmEx Charge Card

By ckramer

We?ve seen the old is new again trend in fashion, hair styles?even the VW bug made a comeback. So I guess no one should be surprised that American Express is making a bold push for its ?new? charge card.

The Original Charge Card

Ever wondered where the idea of credit cards came from?

As the legend goes, a businessman named Frank McNamara took some clients out for a fancy dinner in 1949. At the end of the meal, he realized?to his great embarrassment?that he hadn?t brought enough cash to cover the check.

And so plastic cards were born.

Charge Card Vs. Credit Card

Though the terms are occasionally used interchangeably, charge cards and credit cards are actually two different things.

• A credit card is a source of revolving credit, meaning that you pay for purchases over time and accrue interest on whatever balance you leave unpaid. You have the option of purchasing well beyond your current means and making payments gradually.
• A charge card essentially allows you to take out very short-term loans, usually for a month. At the end of each month, you must pay your balance in full. Should you fail to pay in full, you could be heavily fined or have your card canceled.

In other words, charge cards put significant pressure on users to purchase only within their means, where credit cards do not.

American Express? New Advertisements

Though charge cards have been around for decades, they?ve fallen out of popularity with the rise of credit cards. But now, what with financial responsibility all the rage, American Express has launched a new ad campaign touting the benefits of its charge card.

The ads, apparently already showing up in newspapers, encourage users to spend responsibly. They further suggest to Americans: Don?t take chances. Take charge.

Can Charge Cards Help You?

If you?re trying to build or rebuild your credit (after a bankruptcy filing, for instance), charge cards have certain benefits:

• You can?t spend more than you can repay
• You?re forced to pay in full each month, which can help with budgeting
• If you adhere to the rules, you won?t be charged interest
• Positive payment action can help improve your credit

In short, charge cards may work well for you, but remember that American Express isn?t the only company that offers them. As with any major decision, be sure to research a variety of charge cards before signing up for one.

Additional Resources

Types of Credit and Charge Cards (PDF)

Federal Reserve Bank of San Francisco?s Brochure Credit and Charge Cards (PDF)

Full post as published by The Bankruptcy Blog on September 06, 2009 (boomark / email).