What is a charge card?

You can use a charge card to make purchases as you would with any other type of credit card. The difference is that charge cards require full payment at the end of each billing cycle. Unlike a credit card where you can carry a balance forward, charge card customers must clear their entire balance each month or risk facing fines and the closure of their account.

As there is no revolving balance on charge cards, customers pay no interest. Other advantages can include no preset spending limit, along with standard benefits such as fraud protection and reward programs.

The main distinction between charge and credit cards is the need to repay charge cards in full each billing cycle. This makes them ideal for customers who wish to avoid accruing credit card debt. It can encourage good financial disciplines, reduce overspending and make money management simpler. If you do want some added flexibility, some charge cards come with pay-over-time features.

Some issuers may also offer charge cards with no preset spending limit. This can make it easier to fund major investments or big-ticket items without worrying about exceeding a credit limit. Your issuer is not giving you access to limitless funds though, as many charge card limits adjust according to factors such as your payment history and spending behaviour.

Another perk of charge cards is that they tend to incentivize spending with lucrative reward programs. Reward points are typically redeemable on travel, dining and purchases with partner merchants. Other benefits can include access to exclusive discounts and ticket sales, as well as protection such as extended warranties and travel accident and luggage insurance.

Charge cards can be ideal for businesses which want to make online purchases without needing to borrow on credit card. Using a business charge card to fund essential expenses can help a company to improve their business credit score further.

Many charge card accounts allow businesses to authorize employee use and set individual limits for greater control over company spending. They can also come with in-built analytical tools and detailed management information, which saves time and resources in reporting and accounting processes.

Charge card customers pay no APR on their purchases, as they clear their balance each month. That does not mean that charge cards have no costs, though. Annual fees for charge cards can be anywhere between $95 to $550, depending on the issuer and card. However, many issuers waive this for the first year, and the cost can often be offset by the rewards and benefits on offer.

You can also be subject to late fees if you fail to pay off your full balance on time or miss a payment altogether. The cost of late fees vary by issuer, but they tend to increase if you make multiple delinquent payments. Failure to repay the full amount on your charge card can also result in damage to your credit score and your issuer closing your account.