Charge Cards vs Credit Cards
The phrase “charge card” is often used interchangeably with “credit card.” This is understandable, as the term refers to a card that can hold charges, and credit cards certainly fit that description. However, charge cards technically fit into their own category of payment, with their own advantages and disadvantages.
They function similarly to credit cards when it comes to making purchases, but have a few unique differences when it comes to paying the bill. These deviations may make them better or worse options for certain cardholders.
How Does a Credit Card Work?
Most consumers are familiar with how credit cards work – but not charge cards. First, an issuer reviews a credit card application to determine if the applicant qualifies. If approved, the issuer uses the applicant’s credit history (including their FICO scoring model credit score) to determine the size of their credit line and the interest rate.
Then, the applicant can begin to make purchases using the card. At the end of each month, the issuer provides a statement balance and requests payment. The cardholder has the option to make the required minimum payment, cover the entire balance, or pay somewhere in between.
Any funds leftover on the account will begin to accrue interest – unless it’s a 0% intro APR card. Though a charge card can technically be considered a type of credit card, they operate quite differently in these key aspects:
- Interest and Balances
- Late fees
- Annual fees
- Spending limits
Where to Get a Charge Card
Since charge cards have been largely replaced by credit cards, you won’t find a huge variety. In fact, American Express is the only of the major credit card issuers that currently offers these cards, along with a selection of Amex credit cards. An American Express charge card often comes with an abundance of luxurious travel perks, impressive membership rewards points – and a high annual fee to match.
Perhaps the most famous of the charge cards is the Platinum Card from American Express. There is also the famed Centurion Card, which is only available to VIPs and by invitation (through a high spending threshold of over $250,000 per year or more. At the entry-level, the American Express Green Card is an excellent option, given it’s quality travel rewards and relatively low $95 annual fee.
Do Other Issuers Offer Charge Cards?
While American Express might be the name most commonly associated with charge cards, there are other options available. Many commercial cards are charge cards. These are;t business credit cards, but are similar in that they are offered to large corporations. Some of these cards are used for purchasing bull items for fleets, such as gas charge cards from Conoco, for example.
In terms of consumer charge cards, there aren’t many non-Amex charge cards on the market today. These products tend to be boutique and custom offers from specialized brands and not something the average consumer would hold or use every day.
Some cards for bad credit are actually charge cards and not traditional credit cards. Some examples of charge cards for bad credit include merchandise cards from Horizon Card Services:
Cards like the Merit Platinum Card offer quick approval, a fast and easy application process, and no credit check. like Horizon or the Group One Platinum, lets consumers build a positive credit history, thanks to regular reporting one of the major credit bureaus: Experian, Equifax, and TransUnion. Even better, there’s no security deposit requirement, as is the case with secured credit cards.
Chime Credit Builder Visa®
The Chime Credit Builder Visa® Secured Credit Card is a credit-builder product from Chime – a fintech that offers an assortment of financial products and services with no hidden fees. The card is also unique in that it is a charge card. Payments with the Chime Credit Builder Visa are made with the funds the user moves from their Chime savings account automatically, meaning users never have to worry about late fees or missed payments – their credit limit is their credit-builder account balance. This process means users can expect their FICO credit score to rise as much as 30 points, on average – opening up the opportunities for more lucrative rewards credit cards down the line.
Divvy Credit Card
- Ideal for companies that struggle with expense reports, reimbursements, receipts, and expensive annual service contracts
- Combines seamless expense management software with business cards so you never have to process another expense report
The Divvy Card is a corporate charge card for companies and business owners who want a corporate card’s flexibility along with the rewards of a traditional business rewards card. The Divvy Card operates a fast application process that requires only six steps and may result in a near-instant underwriting (depending upon the business’s cash supply and income). Divvy also operates several different underwriting forms – the company even boasts an internal underwriting team for new applicants. Traditional and cash underwriting are offered as well, making it easy for companies to find a bespoke credit line for their unique needs.
Advantages and Disadvantages of a Charge Card
With how charge cards work, there are plenty of pros and cons to weigh before you decide to get one. For one thing, your card can get very expensive if you have trouble paying your balance in full each month. On the other hand, you’ll never have to worry about credit limits or interest rates if payments aren’t a problem for you. Plus, you can still get access to plenty of worthwhile rewards for your purchases, including travel credits.
Because charge cards have no preset credit limit, they are only for people with excellent credit – or at least a very good credit score. Charge cards are not really a tool to build credit. Rather, a charge card is something like a personal finance payment card for someone with excellent credit to take advantage of and use for their everyday needs.