A charge card works a lot like a regular credit card, but without the option of making a partial payment. In other words, the main difference is that cardholders typically must pay their entire statement balance each billing period with a charge card. For that reason, the minimum payment on a charge card is usually the same as the statement balance. That said, some charge card issuers such as American Express have started to allow cardholders to pay off certain purchases over time. This turns the card into a hybrid between a charge card and a regular credit card.
Charge cards also have no pre-set spending limit. This doesn’t mean that you’ll have no credit limit at all. Instead, it means that your credit limit will change over time based on a number of factors, including how you use the card. You likely won’t know what your limit is until you’re notified by the card issuer that you’ve gotten close to or reached it, and the limit could easily be higher or lower the following month. This can negatively affect your credit score, too, depending on how the card issuer reports the card to the credit bureaus.
Key Things to Know About How Charge Cards Work
- Cardholders usually must pay their statement balance in full each billing period.
- There is no pre-set spending limit.
- Charge cards report to credit bureaus and impact credit scores.
Besides these unique features, charge cards work much like regular credit cards. Cardholders borrow money from the card issuer to make purchases, and then they pay off their purchases at a later date. Charge cards typically offer rewards, too, and they are reported to the credit bureaus, like normal credit cards.