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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 most widely known and accepted charge card is The Platinum Card® from American Express.
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.
As of October 2018, the Amex Platinum (Terms Apply) late fees are as follows:
- After the first late payment, the fee is $27 .
- If you make another late payment in the following six billing periods, the fee rises to $38.
- If two consecutive payments are missed, then the late fee is $38 or 2.99% of the total balance—whichever is greater.
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.
Is a Charge Card Right for You?
If you have a need for greater spending power and anticipate making large purchases, then consider an Amex Platinum. Not only will it provide you with the spending flexibility you need, but it offers extensive benefits ranging from lounge access to powerful transferrable rewards points. Of course, because of its premium offerings, this card requires applicants with good to excellent credit scores—ideally in the 700 range.
Note: You may have heard of Pay Over Time, an offering by American Express which allows for certain charges to be paid over time. This effectively makes a charge card more of a hybrid charge/credit card, but does not change the underlying premise of the charge card and its payment requirements for those charges not marked “Pay Over Time”
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