Although most credit cards allow you to carry a balance, there are also a number of credit cards that require that the balance be paid in full each month.
The most common of these “installment credit cards” are issued by American Express. Installment credit cards are used primarily for convenience, as they allow the card member to avoid using cash, while adding the value of purchase protection and the benefit of earning rewards points.
As previously mentioned, installment credit cards differ from more traditional revolving credit cards because they require that you pay your full balance each month, which will vary depending on your spending habits. If by chance you do carry a balance, you will be charged a hefty penalty.
At this point, you may be asking yourself why anyone would use an installment credit card if you can easily apply for a revolving credit card and carry large balances and make minimum payments.
Installment Credit Card Benefits
Well, there are several reasons why installment credit cards are a good choice for individuals and businesses alike. The main benefit is that they don’t carry an interest rate, and thus no finance charges, because the card member must pay off the balance each month. This also tends to keep the cardholder within their budget, as they know they’ll need to pay off what they spend at the end of each billing cycle.
The inverse is true with revolving credit cards, which essentially allow cardholders’ to spend what they don’t have.
Another benefit is the buyer protection and the rewards associated with the card, paired with the convenience of not having to withdraw cash to pay for purchases. One final plus is the lack of a spending limit.
Downsides to Installment Credit Cards
The only real downside to an installment credit card is that they usually carry a annual fee between $100-$200, but the benefits can outweigh the cost for many consumers and businesses.
They can also muck up your credit score because the high balance is often used in place of a standard credit limit, which can make your credit utilization appear maxed out.
If you have bad spending habits, you may want to stick with an installment credit card to curb your spending. You’ll be required to pay your balance off in full at the end of each month, so if you do overspend, you’ll learn very quickly what you can and cannot afford.
American Express used to only offer installment credit cards (charge cards), but in recent years launched the Blue series, which is their stable of revolving credit cards.
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