What is a Charge Card?

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

How Does a Charge Card Work?

A charge card is basically a type of credit card with more restrictions, but no interest. Credit cards and charge cards both follow the “pay later” model, allowing you to make purchases and receive a bill at the end of the month. This payment structure means charge cards can affect your credit as well. Some also provide rewards for your spending.

However, charge cards can’t carry a balance from month to month as credit cards can – you’re required to pay the balance in full every month. This means you won’t have to pay interest charges, but it can also cause trouble if you spend more than you can afford. While these cards don’t charge interest, charge cards are known for their high late fees, which average around 3% of the balance after the due date expires.

You also don’t get a preset spending limit with a charge card. Instead, charge card issuers examine your credit, payment history, and income before it approves a purchase. This can give you more wiggle room if you need to make a large purchase, though issuers closely monitor hefty charge card balances and report to the major credit bureaus. Finally, whereas some credit cards are free, all charge cards cost an annual fee.

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: