Charge cards are open credit accounts that promote a balanced mix of credit in North Carolina. They seem like credit cards but do not function the same way. Although you can use them to buy things without actually spending your own money, their balance needs to be paid completely by the due date.

Any home insurance company or mortgage lender in Raleigh will attest that charge cards are a form of plastic that can be extremely useful in credit building. But they are no longer as popular as they used to be. Below are the real reasons they do not appear on credit reports often anymore.

They Are Not Offered by Most Financial Institutions

American Express is the only major issuer of general-use charge cards in the United States. The company is the last one standing after the Diners Club stopped entertaining new applications. Unlike the cards of its closest rivals, those of AmEx are not widely accepted outside the U.S. borders. In other words, the charge cards issued in America are virtually useless overseas. If you travel abroad a lot, having one or two American Express charge cards will not boost your buying power.

They Require (Not Teach) Discipline

Generally, charge cards are prohibitive. The consumers that qualify to have them must possess credit scores that fall into either the good or the excellent range. If you are just starting to write your payment history, your thin file may automatically disqualify you. If you are trying to recover from financial distress, American Express will likely deny your charge card application.

In a way, a charge card is designed to encourage financial discipline. Without the option to pay a portion of your bill without facing a penalty, you have no choice but to zero out the balance every month. But you need to be demonstrated responsible credit management before you can be considered for this plastic. If you have a history of delinquency, no sane creditor will issue you a charge card because you are bound to misuse (or even abuse) it.

They Are Too Risky to Have

man using his charge card for online payment

The beauty of having a charge card is its lack of interest. Considering that the full balance is always the minimum payment, you will never see interest on the bill. But then again, missed payment comes with hefty consequences. A charge card has a steep late fee to discourage mismanagement. The penalty goes up when the balanced is not zeroed out over several billing periods.

While the debt you accumulate through charge cards does not increase your credit utilization rate, unpaid balances are reported to credit bureaus. As you probably know, FICO scoring models penalize late payments severely. On the contrary, making just minimum credit card payments does not drive down your FICO scores. In other words, you can still be considered creditworthy even if you never pay off your credit card bills.

A charge card can offer the kind of flexibility a typical credit card can’t, but its unique restrictions are the primary reasons it is slowly becoming a relic. But if you qualify for one, make sure that you understand how your prospective card works to prevent it from hurting your credit at some point.