Charge cards are a type of payment card that require customers to pay their balance in full each month and thus do not have an interest rate or involve finance charges. Charge cards also feature no-preset spending limits that automatically adjust to customers' spending patterns, offering needed flexibility for travel and entertainment expenditures. American Express first introduced the charge card in 1958 and continues to dominate this segment of the payment cards market - here are their best charge card offers.
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Updated: April 20, 2018
Charge cards aren't for everyone, but if you want superior rewards and you don't mind a higher annual fee, they can be a good choice. They are helpful if you sometimes need to buy big-ticket items or if you want to get organized with your cards. Curious about whether they are right for you? Here, we look at:
Learn more about these financial products below!
A charge card, typically offered by American Express, allows you to be approved for large sums on the spot. The card issuer bases its decision on your past purchases and payments. While there's no set limit, it's not unlimited. The tradeoff is that you need to pay in full each month, whereas with a credit card, you can pay a minimum.
If you aren't carrying a balance, the average debt per card is $1,154, according to creditcards.com. That means it is charged, but paid off each month. Compare that to $7,527 per card that usually carries a balance. That means that the debt on a card that doesn't carry a balance is typically considerably lower than a card with a balance.
Looking at how many people don't carry a balance – and might do well with a charge card – we've found that about 29% of accounts are paid in full each month, while accounts with a balance are almost 44%:
American Bankers Association survey
According to Bankrate, charge cards were once tied to rich rewards on spending and benefits that credit cards couldn't match. But in recent years, credit cards have aggressively explored the market, and there are now a number of premium credit cards with high-end features that rival those of the highest end charge cards.
While American Express is the primary network that provides charge cards, there are a few gas and retail charge cards still available. However, most of those are co-branded credit cards with a Visa, Mastercard or American Express logo, which means they are available where the network is used.
There is now an Amex feature that makes its charge cards more like credit cards called Pay Over Time. If you qualify, you can use the charge card as a charge/credit hybrid once you enroll, provided that the card is eligible. You select eligible charges of $100 or more and pay off those charges over time, but they will accrue interest as a credit card does.
While in some ways credit cards and charge cards are similar, such as both can help you build credit, in other ways they are quite different. Here, we look at how elements such as annual fees and interest work:
Here are key ways how charge cards and credit cards differ:
|Charge card||Credit card|
|Pay in full each month||Can pay minimum each month|
|No specified limit||Has credit limit|
|Can be approved for large sums||Penalized for going over limit|
|Builds credit||Builds credit|
|Often with high annual fee||Can have no annual fee|
|Typically through Amex||Most major banks|
Like credit cards, charge cards' payment histories are reported to the 3 major credit bureaus, which helps your credit along. However, they differ in some ways.
For example, according to Bankrate, older credit scoring models interpret the charge card's highest balance in its history as if it were a credit limit. "That means a card that once had a high balance, but usually has a lower balance, could improve your credit utilization ratio. A card that hits near its highest balance month after month could have a negative effect."
Newer credit scoring models, says Bankrate, consider a charge card as part of the credit score's payment performance component, but not its utilization component. "That's because a highest-ever balance isn't really the same as a credit limit," the site says.
Charge cards have a host of advantages, including no preset spending limit and excellent rewards and benefits. Here are some very good reasons for getting a charge card:
|Card||APR||Amount owed||Months paid||Interest costs||Total paid|
|Chase Sapphire Preferred® Card||17.24%||$3,000||127||$2,300||$5,300|
While charge cards have some definite advantages, there are a few reasons why they may not be right for you. You have to weigh the advantages with the downsides to these cards:
Charge cards are right for people who are organized, might need the convenience of no preset limit and superior benefits. Here are people who might benefit from having a charge card:
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