What is a charge card?
A charge card works like a credit card but has a few key differences. A traditional charge card wouldn’t usually have a preset spending limit, and wouldn’t allow you to carry debt from month to month. That means you’d have to pay your balance in full each billing cycle.
Charge cards aren’t very common these days, and some have changed to become more like credit cards. They may allow you to finance some purchases with interest, although you’d still need to pay the rest of your balance in full.
How do charge cards work?
Charge cards allow you to pay for purchases in stores and online without a preset credit limit. However, that doesn’t mean cardholders can always buy anything they want – their cards could still be declined. Charge card issuers typically determine spending limits based on financial patterns and purchase history.
There are no minimum payments
When you get your charge card statement, you’ll be expected to pay the full statement balance by the due date. If you fail to pay in full every month, your account will not be considered to be in good standing, and your ability to make new purchases could be temporarily suspended. The issuer also may hit you with a large late fee if you don’t pay on time.
Who are charge cards for?
Charge cards tend to be targeted toward people with good to excellent credit, and they typically charge high annual fees and may come loaded with luxury perks.
Big spenders and business owners may favor charge cards because they tend to give you more buying power. For example, American Express touts its charge cards as giving you the flexibility to pay for a big wedding or a dream vacation. A charge card also can be a convenient way to cover a large business expense.
Charge card vs. credit card
Charge cards generally don’t have preset spending limits and require you to pay your bill in full each month in order to keep your card account in good standing.
A credit card typically has a preset spending limit and allows you to carry a balance. You can keep your account in good standing by making the minimum payment if you’re short on cash. You’ll still have to pay interest charges if you carry a balance, unless you have a 0% intro APR credit card.
Charge cards usually come with an annual fee, as do some credit cards. That being said, you can easily find a credit card with no annual fee. Both types of cards may offer benefits, perks and rewards like points or miles, as well as luxuries like airport lounge access.
Pros and cons of charge cards
| Pros | Cons |
|---|---|
No preset spending limit Likely to offer rich perks and rewards Balance does not affect credit score | May be more difficult to get Must be paid in full each billing cycle Often charge high annual fees |
Charge cards have become more like credit cards over time, to the point that these terms often get used interchangeably. For example, American Express offers a pay-over-time feature on its charge cards that allows you to finance a big purchase with interest and still keep your account in good standing.
It can be difficult for most people to qualify for some charge cards. For example, the Centurion® Card from American Express is geared toward individuals who routinely charge $350,000 or more a year on their card.
Pros and cons of credit cards
| Pros | Cons |
|---|---|
Can pay only minimum payment May offer 0% interest deals Some have no annual fees | Come with a pre-set credit limit Balance affects credit utilization rate May charge high interest rates |
Credit cards are much more common than charge cards, which means you have more options when deciding what the best credit cards are for you.
They’re also more flexible, and a much more accessible option for those who are new to credit or who have shaky credit. That means you can use a credit card for building credit or for rebuilding credit. If you can’t qualify for a charge card, there are still a number of credit cards that might be a good option.
How do charge cards affect your credit score?
Charge card issuers report activity on charge cards to the three major credit bureaus. As with a credit card, paying your charge card bill on time and in full will have a positive effect on your credit score, while late or partial payments can have a negative effect on your score. Managing your charge card well can help you maintain a good credit score, which is generally a FICO score of 670 or higher.
No matter what kind of cards you use, it’s important to monitor your credit regularly with the credit bureaus to look for errors or fraud and see how you can improve your credit score.
Frequently asked questions
Although it’s much easier to find a credit card, several issuers still offer charge cards. If you’re a small business owner, you can look at several options, like the Capital One Spark Cash Plus charge card.
The best card for you depends on the card and your situation. Heavy spenders and business owners seeking high spending power and bigger perks may want to consider a charge card.
If you prefer the flexibility of a credit card, but want to make big purchases from time to time, consider a high-limit credit card, which can offer the best of both worlds. If you’re new to credit, look into credit cards for beginners that can help you get started.
The application process for a charge card is almost identical to applying for a credit card. To apply for a charge card, you choose the card you want and fill out the issuer’s application online. You will need to supply information such as your legal name, address, annual income, employment status and housing costs.
Charge cards generally have no preset spending limit because you need to pay in full every billing cycle. Instead, the issuer will decide on a case-by-case basis how much you can spend in each cycle. Credit cards usually have a preset spending limit and charge interest if you carry a balance.