Charge card

A charge card is a type of credit card that enables the cardholder to make purchases which are paid for by the card issuer, to whom the cardholder becomes indebted. The cardholder is obligated to repay the debt to the card issuer in full by the due date, usually on a monthly basis, or be subject to late fees and restrictions on further card use. Charge cards are distinct from credit cards in that credit cards are revolving credit instruments that do not need to be paid in full every month and a balance may be carried over, on which interest is paid. Charge cards are typically issued without spending limits, whereas credit cards usually have a specified credit limit that the cardholder may not exceed. Most charge cards are held by businesses, corporations or executives thereof, and are issued to customers with a good or excellent credit score. In 1914, Western Union opened the first charge account for its customers and provided them with a paper identification. There were many larger department stores which opened store charge accounts for their customers with paper identification, enabling the customer to make purchases on credit provided by the store. However, these accounts could be used only within the store which issued them. In 1950, Diners Club began opening charge accounts with paper identification cards, directed at the travel and entertainment markets. The novel feature of these cards was that the charge card could be used in a large number of stores. These stores had to enter an agreement with Diners Club, and pay a fee to the company. For the fee, Diners Club carried the cost of setting up accounts, authorizing each transaction, processing transactions and collections, bore the financing costs and assumed the risk of cardholders defaulting. The new system was especially appealing to smaller stores in competition with the larger stores but who could not justify setting up their own charge account facilities. Eventually the larger stores began accepting these cards, testifying that the fees charged by the card operator were lower than the store's cost in running their own store accounts.