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Charge cards and credit cards are commonly mistaken as the same thing. However, the fundamental difference is the ability of a card to carry a balance from month to month. Despite the fact the terms are often used interchangeably, only a credit card allows debt to be paid over time, with added interest, of course.
A charge card must be paid in full every month, if not, the account holder may quickly find their card will no longer work.
The Benefit of a Charge Card
We always recommend paying balances in full each month no matter which type of card you use. If you follow that advice, there shouldn’t be much of a difference in how you use any charge or credit card. However, an advantage of charge cards is they usually don’t have preset spending limits.
Keep in mind, that “no preset limit” does not equate to unlimited spending ability. The card issuer will still set limitations based on payment history, financial resources, credit score, etc. Just check online or call before making a large purchase to confirm your current purchasing power. And of course, you still must pay the entire balance in full according to the due dates set.
This is a great tool should the need for a large purchase arises. It allows greater flexibility than a credit card with a designated credit limit. It also helps avoid maximizing a credit card’s limit and thus increasing credit utilization which will negatively impact your overall credit score.
Impact on Your Credit Score
Credit scores are determined by multiple contributing factors including payment history, the age of your credit, credit utilization, etc. Credit utilization is the ratio of your debt to available credit. Since there are no preset spending limits on charge cards, credit bureaus cannot calculate this ratio. You can spend as much as you want on a charge card and it won’t affect the credit utilization factor of your credit score.
Consequences of Not Paying Full Balance
Credit cards allow account holders to carry a balance and simply pay interest if they make the minimum payment. If a minimum payment is not met, credit card holders are charged both interest and late fees. Interest fees are not traditionally an option with charge cards. Instead, if the full balance is not paid, then late fees are applied.
Taking things a step further, late, missed, or payments not in-full on charge cards will likely cause stricter scrutiny on your overall relationship with the card issuer. This could mean reduced charging ability or termination of accounts.
American Express Cards with “Pay Over Time”
American Express used to classify many of its most popular cards as charge cards, but they've recently decided they aren't really “charge cards” after all.
The reason is that even the Amex cards that don't function like traditional credit cards still offer cardmembers some flexibility to choose how and when they pay.
For example, The Platinum Card® from American Express has a feature called “Pay Over Time” that lets you pay for select charges over time with interest.
Is a Charge Card Right for You?
If you have a need for greater spending power and anticipate making large purchases, then a charge card might be the right choice. On the other hand, the Amex cards that have the Pay Over Time feature can offer the best of both worlds: You still get the flexibility of a card without a preset spending limit, but you can also finance some purchases with interest if needed.
The Amex Platinum also comes with extensive benefits including airport lounge access and some of the most valuable transferrable rewards points available. Of course, because of its premium offerings, this card requires applicants with good to excellent credit scores—ideally in the 700 range.
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