Home > Credit Cards > What Exactly Is a Charge Card?

Comments 0 Comments

Charge cards are kind of like a cousin to the standard credit card. These payment cards evolved from systems that allowed customers to “run a tab” at retailers. Today, some charge cards are still offered as an alternative to traditional credit cards, but you may still be wondering exactly what they are. Here’s what you should know about what makes charge cards different than your standard credit card.

You Usually Can’t Carry a Balance …

The fundamental difference between a credit card and a charge card is that a charge card doesn’t normally permit you to carry a balance. All charges that appear on your monthly statement are expected to be paid in full by the due date. If you typically carry a balance on your card, or know you will, a credit card may be a better option for you. Just remember to use either responsibly, as you don’t want to find yourself in credit card debt.

… Unless You Can

If this is important to you, and you still really want a charge card, you may be able to speak with a charge card issuer and see if they allow you to carry a balance, even once in a while. For example, American Express offers the Pay Over Time option to many of its business and personal charge card holders. By selecting this option, cardholders are allowed to pay eligible charges of $100 or more over time. Cardholders can even select individual charges to be paid over time, or can choose to have all travel-related charges eligible for extended payments with the Sign & Travel option.

Say Goodbye to That Spending Limit

Well, sort of. With a credit card, you are usually assigned a credit limit, but most charge cards don’t have a specified limit. That doesn’t mean that your line of credit is unlimited, however. It just means that the maximum amount you are authorized to charge can vary based on your spending and payment habits, as well as your current credit history.

Pick Up the Phone Before Making That Big Purchase 

Because charge cards generally have no pre-set spending limits, it’s harder to know if a charge is going to be approved automatically. Therefore, charge card users should consider contacting their card issuer for pre-approval before making any unusually large charges.

What About How it Affects Your Credit?

With no pre-set spending limit, it’s difficult for credit bureaus to determine how much available credit you have. This is important because your debt usage (or credit utilization) is a component of your credit score that indicates how much of your available credit has been consumed. In many situations, charge card issuers will report your credit limit as the highest balance you’ve had. So, if your $1,500 car repair charge last month was the most you’ve ever put on your charge card, that would likely be considered your limit when reported to the credit bureaus. Keep in mind, experts recommend keeping your debt below 30%, and ideally lower than 10%, of your credit limit for the best effect on your credit scores. (You can see how your spending habits are affecting your credit score by taking a look at your free credit report summary, updated every 14 days, on Credit.com.)

Don’t Forget to Make Your Payments On Time

This is true for both charge cards and credit cards, as late payments can affect your credit score. But, because charge card users agree to pay their entire statement balances in full, it only makes sense that there are hefty penalties for failing to do so.

Image: Neustockimages

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team