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.
Credit Cards That Look Like Installment Accounts
These are known as charge cards, though they often appear on credit reports as “installment credit cards” or “installment accounts.”
In reality, a credit card can’t really be an installment account, despite the fact that many charge cards show up as such on credit reports and drive underwriters crazy.
So we’re really talking about charge cards here. If a credit card were truly an installment credit card, it would mean that you spent a certain fixed amount of money, perhaps once on a large purchase, and agreed to pay it off in equal installments until it was paid off in full. Kind of like a loan…
Maybe the “Pay Over Time” feature from American Express is a quasi “installment credit card” service, but even that’s debatable.
I suppose there are also services, such as Chase’s Blueprint technology, which allow you to pay off your credit card debt in installments as well. But again, these aren’t outright installment credit cards.
You could also look at a store credit card as an installment credit card if used for one big purchase, though most allow you to make additional purchases, and have a minimum payment option, not a set installment amount that must be paid each month.
Credit Card Balances Are Always in Flux
The very nature of credit cards is that the balance is always in flux, along with the associated payment due.
After all, it would be very difficult to spend the same amount of money each month on your credit card, unless it were used for a single purpose, which is sometimes the case.
Credit reporting bureaus likely refer to charge cards as “installment accounts” because the entire balance is due in full each month, unlike revolving credit cards, where only a minimum payment is due each month.
Because of this distinction, your credit score may be affected differently, depending on whether it’s an installment account or a revolving account. Generally, cardholders are “punished” if the balance on their revolving accounts is too high, because their credit utilization will be seen as maxed out or close to maxed out.
With a true installment account this isn’t the case because the balance is actually decreasing every month, and was never truly “maxed out” to begin with.
However, a charge card 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 a charge 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.
With a charge card, which is used primarily for convenience, a cardholder avoids using cash and gets the added value of purchase protection and the benefit of earning rewards points.
American Express used to only offer charge cards, but in recent years launched the Blue series, which is their line of revolving credit cards. Most of them tend not to have an annual fee.