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Charge cards can help you build credit, but they differ from traditional credit cards — here's how

Charge cards are a specific type of credit card that works a bit differently. Here's exactly what a charge card is and how it affects your credit score.

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Terms apply to American Express benefits and offers. Visit americanexpress.com to learn more.

While some people think of charge cards and credit cards as interchangeable, there are key differences. Most notably, charge cards have no set spending limits and require you to pay the balance in full every month or face penalties.

There are other differences, as well. Below, CNBC Select explains what a charge card, how it works and how can affect your credit score.

What we'll cover

What is a charge card?

Like a credit card, a charge card allows you to pay for purchases later. You can also earn points like you would with a rewards or travel credit card.

However, unlike traditional credit cards, charge cards have no preset monthly spending limit. That can provide you with more buying power but it doesn't mean you can spend as much as you want. The card issuer adjusts your credit limit from month to month based on your behavior and history as a cardholder — and it's constantly in flux.

You also can't carry a balance with a charge card. You're typically required to pay in full every billing cycle or face late fees or other penalties.

What are charge cards used for?

Charge cards can be used for everyday spending or big-ticket purchases, such as electronics, appliances and jewelry. Depending on your creditworthiness, spending patterns, payment history and financial resources, this might mean a spending limit that's double or triple that of a traditional credit card.

To avoid your card being declined, you can call or message your card issuer in advance to see if you will be approved for a purchase.

American Express cardholders have access to a tool available online or via the Amex app that allows them to check their purchasing power.

Find the best credit card for you by reviewing offers in our credit card marketplace or get personalized offers via CardMatch™.

What is an example of a charge card?

Charge cards are offered by a limited number of companies and most are geared toward businesses, such as the Brex Business Card and The Plum Card® from American Express.

Brex Card

  • Rewards

    Earn rewards and cash back on everything you spend, like 7x on rideshare, 2x on recurring software, and access exclusive events and over $400K in software discounts.

  • Welcome bonus

    30,000 points after spending $3,500, or 50,000 points after spending $9,000 in the first 30 days.

  • Annual fee

    No annual fee

  • Intro APR

    Brex does not charge interest

  • Regular APR

    Brex does not charge interest

  • Balance transfer fee

    N/A

  • Foreign transaction fee

    No foreign transaction fees, free ACH and wires worldwide, global acceptance on the Mastercard network

  • Credit needed

    No personal guarantee or credit check. Only companies organized and registered in the United States may apply for a Brex account. See Platform Agreement for business criteria.

Pros

  • No annual fee
  • No foreign transaction fee

Cons

  • You'll have to pay off the balance daily or monthly

*Offer available to new Brex Card customers only.

Brex Mastercard® issued by Emigrant Bank, Member FDIC. Brex Cash provided by Brex Treasury LLC, member FINRA and SIPC. Brex Treasury is not a bank; Brex Cash is not a bank account. Testimonials may not represent experiences of all clients. Terms apply, visit brex.com.

The Plum Card® from American Express

On the American Express secure site
  • Rewards

    Paying early pays off: get an unlimited 1.5% Early Pay Discount on eligible charges within 10 days of your statement closing date and see the discount applied to your next statement when you pay at the least the Minimum Payment Due by the Please Pay By date.

  • Welcome bonus

    No current offer

  • Annual fee

    $250‡

  • Intro APR

    N/A

  • Regular APR

    N/A

  • Balance transfer fee

    N/A

  • Foreign transaction fee

    None‡

  • Credit needed

    Excellent/Good

 ‡ See rates and fees, terms apply.

Pros

  • Early Pay Discount of 1.5% on the amount paid within 10 days of your statement closing date - just pay the minimum due by the payment due date
  • No fee on purchases made outside the U.S.

Cons

  • No special financing offers

Several popular American Express cards — including The Platinum Card® from American Express and American Express® Gold Card — used to be considered charge cards because they didn't offer preset spending limits and needed to be paid off in full each billing period.

This is technically no longer the case. Although these cards still don't have limits, both Amex personal and business cards now provide a Pay Over Time feature, which allows you to buy now and pay later on eligible purchases of $100 or more. (You will still incur interest).

You do have the option to unenroll from Amex's Pay Over Time feature. Additionally, consumer cards added the Pay It® and Plan It® features, which also provide more flexibility on when cardholders can pay their bills. Terms apply.

How does a charge card affect your credit score?

Since charge cards don't have a credit limit, they don't factor into your credit utilization rate, which is the percentage of your total available credit that you're using.  But charge cards do influence the most important factor of your credit score — payment history.

They also impact the average age of accounts, number of new inquiries and credit mix.

Just like with any other credit account, you should maintain on-time payments so positive information is sent to the credit bureaus and appears on your credit report.

You should also aim to keep your charge card open, since a closed account can reduce the average length of time you've had credit. And since charge card accounts are considered revolving credit, closing a charge card may affect your credit mix, particularly if you don't have any other credit card accounts open. You should have a mix of revolving and installment accounts (such as personal loans, auto loans or mortgages) to show lenders you can manage different types of credit.

Applying for a charge card will appear as a new inquiry on your credit report, which may temporarily lower your score by a few points.

While your statement balance isn't factored into your credit utilization rate, you should keep it as low as possible to avoid missing a payment or incurring debt.

FAQ

Payment history, length of credit history, and other factors can impact your credit score. However, unlike traditional credit cards, charge cards do not impact your credit utilization rate because there is no set spending limit.

Just like traditional credit cards, charge cards can help build credit if you make on time payments for your full balance each month.

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Bottom line

A charge card can be a good choice if you want expanded (but not unlimited) buying power and everyday rewards. Plus, you'll be able to improve your credit score by using your card responsibly and paying on time every month. Since charge cards don't factor into your credit utilization rate, there's less risk of hurting your credit score, but keep in mind that they still influence four of the five main factors of your credit score.

Why trust CNBC Select?

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every personal finance article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of financial productsWhile CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

Catch up on CNBC Select's in-depth coverage of credit cardsbanking and money, and follow us on TikTokFacebookInstagram and Twitter to stay up to date.

Information about the Plum Card® from American Express has been collected independently by Select and has not been reviewed or provided by the issuer of the card prior to publication.

The Brex Mastercard® Corporate Credit Card is issued by Emigrant Bank, Member FDIC. Terms and conditions apply. See the Brex Platform Agreement for details.

For rates and fees of The Platinum Card® from American Express, click here.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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