charge card

credit card

Small card that authorizes the person named on it to charge goods or services to his or her account. It differs from a debit card, with which money is automatically deducted from the bank account of the cardholder to pay for the goods or services. Credit-card use originated in the U.S. in the 1920s; early credit cards were issued by various firms (e.g., oil companies and hotel chains) for use at their outlets only. The first universal credit card, accepted by a variety of establishments, was issued by Diners' Club in 1950. Charge cards such as American Express require cardholders to pay for all purchases at the end of the billing period (usually monthly). Bank cards such as MasterCard and Visa allow customers to pay only a portion of their bill; interest accrues on the unpaid balance. Credit-card companies get revenue from annual fees and interest paid by cardholders and from fees paid by participating merchants.

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A charge card is a means of obtaining a very short term (usually around 1 month) loan for a purchase. It is similar to a credit card, except that the contract with the card issuer requires that the cardholder must each month pay charges made to it in full -- there is no "minimum payment" other than the full balance. Since there is no loan, there is no official interest. A partial payment (or no payment) results in a severe late fee (as much as 5% of the balance) and the possible restriction of future transactions and risk of potential cancellation of the card.

In contrast, a credit card is a revolving credit instrument which does not need to be paid off in full; no late fee is charged as long as the minimum payment is made, which carries a balance forward as a loan charging interest. Many people are not aware of this distinction however, and often the two terms are used interchangeably to describe any card which can be used as payment.

Many charge cards have the option for its 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.

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. In Europe, however, the MasterCard-affiliated Maestro brand replaced the European Eurocard brand for payment cards in 2002. Many Eurocards, particularly in countries like Austria and Germany, were charge cards. Therefore, the majority of MasterCards in these countries still are charge cards. Visa charge cards are also available in Europe.

In 1914, Western Union offered the first charge card for consumers.

References

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