What is a Charge Card and How Does it Differ From a Traditional Credit Card? 

I have always found charge cards intriguing. They offer unspecified credit limits and an often impressive array of perks. But perhaps most appealing is that they allow people to borrow a large amount of money quickly and easily without accruing interest. Of course, there’s always a catch. 

Charge cards aren’t designed for revolving debt. Unlike their credit card cousins, you have to pay your entire balance each month. They’re ideal when you know you have the money to repay the bill in full, giving them a very different use case than your typical credit card.

A charge card allows you to borrow money and pay it back in full within one billing cycle. That means it doesn’t allow for revolving debt but also doesn’t charge interest when the balance is paid.

If you stick to the original intent of a charge card, you can enjoy all of the benefits of credit cards with none of that nasty debt. Interested? Here’s everything you need to know.

With a charge card, the issuing bank provides you with the funds you need to complete a purchase. The amount of money you can access is not fixed with a specific credit limit but depends on factors such as your past charging habits and income. 

If there’s one piece of information I want you to remember from all of this, it’s that every time you make a charge, you’re taking out a short-term loan. Potentially an extremely short-term loan.

Spending Limits

One of the major benefits of a charge card is its flexibility. The credit limit isn’t fixed like it is with a traditional credit card,  so you can charge something very expensive and not max out an account.

Now, this doesn’t mean you can charge any increment you want. Instead, the issuer will analyze your current spending patterns, payment history, credit records, and financial resources to determine how much you can borrow.

In many circumstances, the amount you can spend with a charge card can be extremely high. However, since you also have to repay the entire amount you borrowed within a matter of weeks, it’s easy to exceed your budget if you’re not careful.

Before using the card for anything, analyze your budget and check to see how much cash you have in the bank to ensure that you can cover the total bill. That takes discipline, but if you don’t exercise it, you’ll be hit with fees, and your account may be suspended.

Monthly Payments and Late Fees

Charge card issuers usually require the entire balance to be repaid monthly. Therefore, if you spent $10,000 in a billing period, you must repay that amount by the due date on your statement, and that might not be as far away as you think.

For example, with The Platinum Card® from American Express, you must pay the balance due in just 25 days. Review the charge card’s terms so you are prepared for the payment.

If you do not pay the entire amount due on time, the charge card issuer will apply a late fee to the balance. The late fee varies between cards and issuers, but typical rates are capped by the government.

Typical Fees and Costs

Because charge cards do not have the same interest-based revenue stream as credit cards, they impose an annual fee to cover business costs. For example, the Capital One Spark Cash Plus card costs $150 a year to use, though if you spend at least $150,000 annually, that fee will be refunded. Charge cards that come with high-value benefits have steeper annual fees.

Here is a chart that shows a few of the differences between charge cards and traditional credit cards:

Since you are not revolving balances from one month to the next, charge card issuers do not add interest to the amount you borrow during the grace period. The only exception is if the card offers the opportunity to spread payments with certain programs.

For example, with the American Express Pay Over Time feature, you can carry over a balance, and interest will be added, but there will be a limit on how much you can charge and carry over.

Issuers That Offer Charge Cards

Charge cards, such as Diners Club, used to be much more prevalent in the United States. You could find them everywhere, from retailers to gas stations. They were a must-have financial accessory. Today, with credit cards, store cards, and pay-over-time services becoming much more prevalent, only a couple of financial institutions offer charge cards.

The most common charge card issuer is American Express, which grants charge cards for personal use, including the American Express Green Card®, the American Express® Gold Card, and The Platinum Card® from American Express.

The American Express Centurion card (aka the Black Card) is available by invitation only. It can be used for personal or business use and is designed for exceptionally high spenders. It’s practically synonymous with wealth and status in some circles, but the prestige and perks this elite card offers come at nose-bleedingly high costs: the initiation fee is $10,000, and the annual fee is $5,000. 

Capital One also offers charge cards, but only for business use. Capital One also offers charge cards, but only for business use. These cards include the Spark 2% Cash Plus, Venture X Business, and Spark 2X Miles.

Which charge card is best for you depends on your needs. Some are designed for travel, others for general shopping, and others for small business and company use. Just be sure to weigh the annual fee against what you get out of the card.

For instance, The Platinum Card® advertises over $1,500 in perks, which is considerably more than the $625 annual fee. However, most of those perks are travel-related. You can still break even on perks if you don’t travel, but breaking even isn’t exactly the goal when it comes to luxury charge cards.  

As with any financial product, charge cards have pros and cons. You should review the benefits and drawbacks before applying to get the right card for you and your circumstances. 

Benefits: VIP Access, Concierge Services, and More

• Travel Benefits: Most charge cards offer a suite of excellent perks that can make for cheaper and more convenient travel. These can include VIP airport lounge access, discounted rates on hotel rooms, and credits for food and drink at the airport while flying and during your stay. 
• Cash Back, Miles, and Points: As with credit cards, you can earn rewards through card transactions. This can be an easy net gain when you pay the bill in full each month.
• Credit Score Impact: A long history of using your charge card responsibly will help your credit score rise. Additionally, your spending with a charge card won’t hurt your credit utilization ratio because, in most cases, you aren’t revolving balances. 
• Concierge Services: Depending on the card, you can access personalized assistance. For example, a concierge can help you acquire tickets to a sold-out show or sporting event, make reservations for a restaurant, or get out of a jam when traveling. 

Drawbacks: High Fees, Highly Exclusive

• High Annual Fees: All those benefits cost money, so the annual fees will be commensurate with the offerings. The more perks the account comes with, the higher the annual fee will likely be. For this reason, it is important to weigh the amount you have to pay against what perks you plan on using.
• Requires Payment Discipline: It can be easy to descend into overwhelming debt when the card has no specific credit limit. Therefore, you will have to pay closer attention to your spending habits than you might with a credit card with an embedded hard stop.
• Small Payments Aren’t an Option: There may be a time when you need to spread your payments out and only send a small amount of money each month. Although charge cards can come with features that allow you to pay incrementally, it’s not what they were developed for, and the interest on revolved debt can be very high. 
• Possible Limited Acceptance. Want one of the super cool, high-value charge cards with all kinds of amazing perks? If so, get in line. Some are only available to people with a history of spending substantial sums of money, having a high income, and having built up excellent credit scores.
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There are significant differences between charge cards and credit cards. I typically recommend having both. 

Credit Limits and Flexibility

Charge Cards: No preset spending limits.

• If you are a big spender, charge cards offer compelling flexibility because they don’t have a preset spending limit that can hold you back. This can be very appealing when you need to make an especially large purchase or have an emergency requiring a huge cash infusion. 
• The amount you can spend with a charge card is dynamic. The issuer will adjust it based on how you use the card. The more you charge and repay, the more money you will have access to, giving you even more access to the bank’s deep pool of funds.

Credit Cards: Fixed credit limits.

• You know how much you can spend, so you can modify your charging based on that limit. This gives you maximum predictability and control when you need guardrails. After all, if you can only charge $1,000, you know you can’t get into any more debt than that (barring interest, of course). 
• Because credit cards allow you to make minimal monthly payments based on the balance, getting into overwhelming debt is possible, especially when the limit is high and you don’t keep track of your spending.

Interest Rates and Annual Fees

Charge Cards: Unless you use the Pay Over Time feature, no interest will be added to the amount you charge. 

• The entire amount you charged in the billing cycle will be due within approximately one month. No interest will be added to the amount you charge. This can give you peace of mind that the amount you spend won’t increase with financing fees.
• The annual fees on charge cards can be steep, but you will still profit from the arrangement as long as you get more out of the account than it costs with the rewards and benefits.

Credit Cards: Interest on revolving balances.

• Interest on credit card debt compounds, so financing fees are assessed on balances that have already grown with the previous month’s fees. If you aren’t exclusively using the card for things you can afford to pay off quickly, those purchases can become far more expensive than when you bought them. 
• Many credit cards are available without annual fees, while others have low annual fees. When you get a credit card that won’t charge you just for having it, you won’t have to worry about adding that additional charge to your bill or how you can get the most out of the benefits so you come out ahead.

Rewards and Benefits

Charge Cards: Premium rewards and exclusive perks.

• Most charge cards offer high-value benefits. For example, the American Express Platinum Card may offer a hotel credit, a digital entertainment credit, an airline fee credit, and access to the global lounge collection. Once totaled, these alone could exceed the annual fee by hundreds of dollars. You’ll also get free concierge services that can help you with purchases and reservations. 
• Charge cards are great when you want to earn rewards as you spend. For example, the American Express® Gold Card could provide 4X points on popular categories, such as restaurants, supermarkets, and flights purchased through the company’s travel portal.

Credit cards: Varied rewards programs.

• Credit cards have certain advantages over charge cards in terms of rewards programs. For example, it is much more common to have a credit card that offers cash back instead of points or miles. With cash back, you will earn a percentage of your spending. Other credit cards offer rewards in the form of points or miles that you can redeem for travel products and services. 
• Unlike charge cards, credit cards are available to people with various credit and financial circumstances. You may get a low-limit or secured credit card if you have unestablished or damaged credit. When your credit is good, more options will be available, and the benefits associated with those cards tend to be more valuable. Many credit cards are also geared toward travel and entertainment, and you may not need to pay a high annual fee to get the perks you want.

If you need a revolving credit line, a charge card isn’t for you. However, if you don’t plan to roll over your balance and want access to a wide range of perks and benefits, a charge card could be a valuable financial tool. 

You should assess your needs and weigh the pros and cons before applying. If you aren’t sure if you can pay off the entire balance each month, you should probably hold off.