What Is a Charge Card?

A charge card is a type of electronic payment card that charges no interest but requires that you pay the statement balance in full, usually monthly. Charge cards are offered by a limited number of issuers. They have an uncapped spending limit with generous reward benefits for the cardholder, but typically charge a high annual fee.

Key Takeaways

  • Charge cards do not have a spending limit or charge interest.
  • Cardholders must pay the balance in full, typically monthly.
  • If you don’t, you’ll pay stiff fees and penalties on unpaid balances.
  • Charge cards typically come with generous perks and awards but charge high annual fees.
  • Charge cards in their truest form have become increasingly rare.

How Charge Cards Work

A charge card is a branded card that is available for use anywhere the brand is accepted for electronic payment. These cards have similar features to those of a standard credit card, but there are also some distinct differences.

Unlike credit cards, charge cards allow unlimited spending and don't charge interest, but they must be paid in full each month, which limits their use. Missed payments are reported to credit bureaus and can substantially affect a borrower’s credit score.

Charge cards are popular because of the rewards and benefits they offer with each purchase. Cardholders can earn points and even statement credits with their purchases, often with double and triple points on dining and travel expenses. Card issuers offer cardholders exposure to a wide variety of standard items, luxury brands, and travel deals that can be purchased with points accumulated from a charge card.

Charge cards require a credit application for approval and are generally only approved for high-quality borrowers with excellent or good credit.

Pros and Cons of Charge Cards

Because charge cards do not have a set spending limit, you can charge an unlimited number of purchases to your card. The downside is that, unlike a credit card, you need to pay the balance in full every month. To encourage you to do so, charge cards generally levy stiff fees and penalties on unpaid balances.

From a financial perspective, charge cards pose little danger to your financial well-being if you pay the balance. They discourage or make it impossible to carry a balance, so the temptation to buy what you can't afford or accumulate debt is minimized.

Charge cards typically include a high annual fee that can run up to $500. Despite the annual fee, some consumers prefer charge cards because they avoid the interest-related expenses that come with using a credit card. Interest rates charged by credit cards are typically high.

Though many credit cards offer awards and perks, those offered with charge cards tend to be bigger. They can potentially be a good option for business travel.

If you're concerned by potentially high fees but still want to earn rewards, it's worth keeping in mind that some of the best rewards credit cards require no annual fees.

Charge Cards Today

Charge cards have become increasingly rare although they can still be found among some issuers, such as for purchasing gas. American Express was a primary issuer of charge cards, including its iconic Green, Gold, and Platinum cards, although it has stopped offering them in their true form.

In recent years, Amex began rolling out its Pay Over Time and Pay It Plan It features, which offer payment flexibility. Pay Over Time gives cardholders the option on eligible purchases of $100 or more to carry a balance for which they will be charged interest. Cardholders can turn the option on or off as needed. Pay It Plan It provides the ability to split up purchases of at least $100 into equal monthly payments and charges a fixed fee but no interest.

In all other respects, the cards still work like charge cards, although Amex no longer refers to them as such. For example, there is no preset credit limit, the cards come with a variety of robust awards, and there are hefty annual fees for those with the most perks.