What Is a Charge Card?

What Are Charge Cards?

Charge cards are cards where you can make purchases on and then pay for at a later time. However, unlike credit cards, charge card users are required to pay back all the money the spent at the designated date. If they are unable to pay for their statement, they are subject to hefty fees and may even be subject to losing their charge card.

Charge Card Approval and Use

Before you can get a charge cards, you must submit a credit application for approval. However, these cards are usually only available to people with good credit. With charge cards, you have unlimited spending but it is mandatory that they are paid in full each month.  If you happen to miss a payment, they will be reported to credit bureaus and it can heavily affect your credit score.

Charge cards are attractive because of the great benefits that come with each purchase. With each purchase, a card holder  can earn points that can be used towards dining and travel expenses. This may be a great fit for you if  you are a business or travel a lot.

Differences Between Charge Cards and Credit Cards

The three main differences between credit cards and charge cards are between their spending limits, payment term, and annual fees.

If you are debating between a charge card or credit card, it depends on a variety of factors, including how confident you are in your ability to pay off your entire balance, how regular your spending habits are, and whether you’re okay with the limited choices.

Charge cards are best for people that are able to pay their monthly balance off on time and in full. They tend to be more expensive than most credit cards, but there are some added benefits, such as having no preset spending limit and special rewards.

Perks and Rewards For Charge Cards

Just as credit cards often feature valuable perks and rewards, so do charge cards. Here are some examples:

• Redeemable points for airline miles or hotel stays
• Travel insurance
• Extended warranties
• Access to special event tickets
• Roadside assistance

Does a Charge Card Affect Your Credit Score?

If you are looking into charge cards, it is important to know that charge cards do affect your credit score. If you are able to pay your card balance each month in full and on time, then maybe a charge card is right for you. However, if you miss a payment, it will heavily affect your credit score.

Another way in which charge cards can affect your score is by reducing the amount of total available credit you are using. It is recommended to keep your credit utilization ratios under 30%. A credit utilization rate is not calculated on charge cards like it is on credit cards, so making a large purchase on a charge card won’t increase your credit utilization rate at all.

Conclusion

In conclusion, a charge card may be an excellent way of building credit, or give more purchasing power if used responsibly. Because charge cards force users to pay off their entire balance each month, they teach financially responsible behavior. Those who cannot pay their monthly credit balance in full, should avoid charge cards.

Let us know in the comment section below if it did! If you don’t have a savings account, see our best savings account section. Looking to add a little extra income each year? If so, see our list of the best bank deals!