Just as Americans are beginning to show some restraint with their credit cards, reader Rory Sutherland sends along an idea for a card that doubles as a credit card and a charge card. He says he proposed the idea to an as yet undecided American Express.
Create a card with two PINs. If you use one PIN at time of purchase (eg. 1234) the card acts as a credit card and you have the option of revolving at the end of the month. Use the second PIN (eg. 4321) and it acts like a charge card; you will be expected to pay that expense in full when the bill arrives.
You have hence created a hybrid card, half credit card and half charge card. The difference is one has an option not to be tempted to revolve at point of purchase, not only at point of payment. Hence you may sensibly revolve long-term purchases such as furniture or PCs. Meals out, however, you would sensibly pay off in that month. But my hunch is that people’s self-control and good intentions are better at moment of use than at moment of payment, by which point all one’s purchases have been aggregated into one single, and unexpectedly large bill.
This system would mean you would pay interest when it makes sense and not when it doesn’t. Yet it imposes no constraint on the card holder at all – it merely adds an extra layer of choice and control. You could also impose restrictions on the card – voluntarily – when you first signed up, and could revise these annually: eg. prevent me from revolving on purchases below $100.
As an added piece of choice architecture, the credit card PIN could be longer and more complicated than the charge card PIN.
Tags: credit cards