Although most credit cards allow you to carry a balance, there are also a number of credit cards that require that the balance is paid in full each month.
The most common installment credit cards are issued by American Express. These credit cards are used primarily for convenience, as they allow the card member to avoid using cash with the added purchase protection and benefit of earning rewards points.
Installment credit cards differ from the more common revolving credit card because they require that you pay a set amount each month, though it will vary month to month depending on your spending habits. You cannot carry a balance, and if you do, you will be charged a fee.
At this point you may be asking yourself why use an installment credit card if you can easily apply for a revolving credit card and carry large balances and only pay minimum payments.
There are several reasons installment credit cards are a good choice for individuals and businesses alike. The main benefit is that they don’t carry an interest rate because the card member must pay off the balance each month. This also tends to keep the cardholder within their budget since they know they’ll need to pay off the sum at the end of the month.
The inverse is true with revolving credit cards which allow cardholder’s to spend that 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 and often no spending limit.
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 alter your credit utilization.
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, but in recent years they launched American Express Blue which is their version of a revolving credit card.
