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Charge Cards: A Smart Alternative to Credit (And Debit) Cards


Charge cards like the American Express Premier Rewards Gold Card provide a smart alternative to debit cards and traditional credit cards.

What Is a Charge Card?

A charge card is a like a credit card without the option to pay your balance off over time. With a charge card you must pay the entire balance in full every month. Of course, that means that you don’t pay interest, either.

Charge cards have been around longer than debit cards…but with debit cards so wisely available now, why would you pay a fee for a charge card? In short, because charge cards provide all the benefits of a credit card—convenience, rewards, fraud and purchase protection, etc.—without the freely available opportunity to overspend and go into debt.

(In the event you overspend on a charge card, they would just shut your account down until you paid it. Compare that to credit cards, where the issuer actually hopes you’ll rack up a big debt that takes months to repay so they can charge you interest.)

Charge Cards vs. Debit and Credit

The following table shows you, very quickly, the big differences among charge cards, credit cards, and debit cards.

Charge Cards Credit Cards Debit Cards
Charges Interest No Yes No
Fraud Protection Yes Yes Some
Purchase Protection Yes Yes No
Rewards Points Yes Yes No
Can Lead to Debt No Yes No
Builds Credit Yes Yes No
Annual Fee Yes Some No

Why Use a Charge Card Over a Debit Card?

For me, the decision to use an American Express Card for most of my purchases was because the card is not linked directly to my checking account. In fact, debit cards kind of scare me.

While debit cards do refund most fraudulent charges—by the time you discover fraud, your money may already be gone. It can take days for your bank to replace your cash. When bills are due, that’s not good. Finally, did you know that you may be responsible for fraudulent PIN-based transactions on your debit card? If somebody steals your PIN and debit card, they can totally clean out your account.

But security isn’t the only reason to use a charge card. Using the charge card makes it easier for me to budget. It means I can buy the things I need throughout the month without worrying about short-term fluctuations in my checking account balance. Finally, I earn American Express rewards points with every purchase. Over the course of the year, those rewards can pay for the card’s annual fee and send some extra cash, airline miles, or gift cards my way.

Why Don’t Charge Cards Have Spending Limits?

American Express charge cards advertise “no pre-set spending limit”.

That doesn’t mean, however, you can go out and buy a new car the minute you get your card. American Express cards do, in fact, have spending limits. They just change as your financial situation changes.

Amex takes your credit history, annual income, and your spending history and measures every transaction against your credit profile. Use your charge card for everyday monthly spending that is within your budget, and you should never hit your limit. If you want to make a big purchase on a charge card, simply call up American Express customer service and let them know—they will let you know if it will be approved.

Best Charge Cards

American Express is the largest provider of personal charge cards. They offer several “levels” of cards with different benefits.

On the low end is the classic American Express Green Card which offers the basic protections of a charge card with a minimalist rewards program for a $95 annual fee.

If you spend at least $1,000 a month on the card, it makes sense to look at the Premier Rewards Gold Card. For a slightly higher fee, you’ll earn better rewards so the card quickly pays for itself.

For big-spending globetrotters, there’s The Platinum Card that carries a $450 annual fee. For that you get a 24/7 concierge and some cool travel benefits like insurance that will evacuate you from a foreign country on a private plane if you need urgent medical care. (Many people do carry this card purely as a status symbol, however.)

Finally, for high rollers there’s the American Express Centurion Card (the so called “Black Card”). Don’t look for an application online, however; the Centurion Card is by invitation only for customers who spend north of $200,000 a year and don’t mind a $2,500 annual fee.

Charge cards may seem like a relic of the past, but people who use them know what they’re doing—they’re safer than debit cards without the debt danger of credit cards.

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As the disclaimer below suggests, I’m a member of the Amex affiliate program, meaning I earn revenue for referring new cardmembers. I do NOT, however, recommend every credit card or product that makes me such an offer…I have used and personally recommend charge cards for what they are, but in making your decision, want you to know all the facts!

Disclaimer: This content is not provided or commissioned by American Express. Opinions expressed here are author’s alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through the American Express Affiliate Program.

*Credit Karma users have received approvals with these TransUnion New Account credit scores. These approval metrics are only guidelines and approval is not guaranteed.

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.

Comments

  1. I did read somewhere that AMEX is making calls on their customers (now) to ask them to make additional payments.

    Personally, I prefer Mastercard

  2. It’s not just AMEX. Last month Citi offered cardmembers a 10% credit on any amounts they pay toward their credit card balance over the minimum balance for the next four billing cycles, up to $550.

    All credit companies are hurting for cash and will be taking steps to reduce their risks in the coming months.

  3. While I do carry a Green card (as an authorized user on my father’s account… I’m a college student and wouldn’t be able to get one otherwise.) I also carry the Blue card, since AMEX does a bad job of reporting “limits” on their charge cards.

    On your credit report, the credit limit on the charge card is listed as the highest ever balance you’ve had on the card at the end of a statement. So unless you make a one-time large purchase (TV, laptop) in addition to your regular monthly spending, AMEX makes it seem to the credit bureau’s that your using a very high amount of your credit, which hurts your Credit Utilization ratio, which in effect hurts your credit score.

    I just wanted to inform people to not cancel all of their other credit lines if they are using a green,gold, platinum, or centurion (in the case of the black card, i doubt they care about their credit score but…) and to keep the lines open to keep your credit use ratio to a minimum.

  4. Good point, Chris. The lack of a credit limit on these cards impacts credit scoring.

    Regardless of what card you use, I think it’s a good idea to have one or two credit cards open that you intentionally do not use for the exact reason you describe — keeping your debt utilization ratio low.

    Some other cards–even those that have credit limits–report your high balance as your credit limit rather than the actual limit. I heard rumors of Capital One doing this a while ago. Not sure if it’s still true.

    Just another reason to monitor your own credit report from time to time.

  5. David, what happens if you don’t pay the amount in full one month? It seems like there would have to be some sort of penalty in the chance that there was a missed or late payment.

    • I have a personal AmEx card and a business AmEx andI was actually just reading about this yesterday. If you miss the deadline, you have 30 days to pay off the balance with interest. After 60 days, the account is frozen. After 90 days the account is closed and sent to collection.

  6. Good question, Lauren…fortunately I’ve never paid this card late, so I don’t know first hand, but as I understand it:

    Every statement comes with a “Please pay by date” that is two weeks after your statement closing date. This is the date they want you to pay by, but I believe you have until the next statement closing date (a full month) to pay the balance in full before anything happens.

    If you don’t, there is a late fee that is more substantial than most credit cards–I think it’s 5% of the balance due. Worse, AMEX may suspend your account so that you cannot make new charges until the balance is paid.

  7. I have a maex platinium charge card and i would like to know why is the card not able to give cash advances right away from the first month

  8. Thing is, if you pay off your credit card monthly, there’s no interest on those charges either. That said, if you’re disciplined enough to spend as much as you can pay AMEX at the end of the month, you’re disciplined enough to pay MCard, Visa, etc…

    NOTE:
    credit cards = Mastercard, VISA, Discover = charge limit
    charge cards = American Express . . . . . = “no” charge limit

    With rewards (points) cards of their own, redeemable to cash certificates hotels or air travel, credit cards seem to have the advantage. Namely, no annual fees.

    Unless holding an AMEX (with “no” charge limit) is better for your credit score than holding a credit card, there’s really no reason to pay the extra annual fee for an AMEX (green or gold) IMO.

    EXAMPLE:
    rewards AMEX allows max charges of $9000
    (when calling in about a large purchase)

    The credit limit on your rewards Visa/Mastercard/Discover is $9000
    (no need to call in for purchase this large)

    Advantage Credit Card because there’s no annual fee and your
    disciplined enough to only make this purchase knowing you will pay it
    in full to avoid interest on the remaining balance. If you don’t,
    interest on the remaining balance will be higher on a credit card than
    a charge card — this is a situation the disciplined user whether
    charge or credit does not get themselves in.

    In closing, my question is simply this, if you must have one or the other – is possession of a charge card better for your credit score than possession of a (high credit limit) credit card?

  9. Interesting reading. I have a charge card with Amex, always paid on time and in full. Had a cheque i sent to pay my bill but it seemed very late in being presented. So I rang them, they said no hadn’t received it so told them i was canceling the cheque and doing internet payment.
    Next month received my account with a cheque reversal fee applied, rang them straight away, was assured it would be re credited to me.
    Next month a late fee had been applied, more phone calls. Again assure all would be well.
    Next month card declined rang them given a reason due to late fee etc,told that all would be well.Go grocery shopping card declined, rang Amex the next day and told that i now have to have 6 months of good payments (my previous years don’t get counted), before they will take of the limit that they have applied and not told me about!!
    Customer service – i think they need to take a good look at how they treat their customers, say they sent me a letter, never arrived but no trouble getting the bills!

  10. I use AMEX too. I think it’s the best card out there! And their customer service has always been helpful and friendly. They truly do put the customer first, which is why a lot of businesses don’t take the card.

  11. i want to know what happens if you dont pay it all at end of the month ?

  12. Do they still give an extra 10,000 points at renewal? I remember they used to do that and you could trade for a gift card which was about the same as the annual fee. So that balanced out. I was an authorized user a while back and now i’m thinking about getting my own.

  13. There is never a reason to pay an annual fee for credit (charge card – or – credit card) unless there are no other cards on the planet that don’t charge an annual fee. I think there are. So, basically, you’re only fooling yourself if you do. There is no justification except to fulfill your gratification over your sense of prestige. If you think you are THAT important, then by all means, pay the fee.

  14. To a point I agree with J that the card fee is perhaps a bit old world. Amex would do far better on the Green Card to have no annual fee, that would attract so many more people.

    It is worth noting though that some countries such as Germany have fee free Amex charge cards. The only catch is you need to bill over a certain value per year, if you as I do travel a fair bit this is often easy to do.

    • But if they dont charge a fee, and u pay back in full every month how will they make their money besides the fees that they charge the vendor?

      • AmEx makes money 2 ways. First is the annual fee you pay for your card. However, the big money maker is that they charge the merchant a percentage of the total charge. I’m not sure what the exact number is, somewhere from 2-6%. That is why some merchants do not accept AmEx, because they have to pay AmEx. The only reason merchants do accept AmEx, is that AmEx, unlike everyone else, guartees it will pay all charges, even if they are fraudulent on the part of the customer.

  15. if i get a charge card and never use it will they charge me for anything or deactivate my card?

  16. Hi,

    I’ve had all sorts of credit cards but never an American Express. After a few decades of debt I finally paid it all off about 4 years ago and have only been using a debit card since. With the credit cards I was able to rack up an obscene amount of bills and debt that was way over what I could manage. It happens faster than you realize. Even charging for little things like coffee, or a book here and there adds up.

    However no worries, they don’t make you pay all at once. For that “favor” they will tack on some additional fees. All your little purchases end up costing way more than if you’d just paid in cash. You think Starbucks is expensive now? Pay with a credit card and pay over the course of a month or two. How expensive would that coffee be if you could only afford to pay the minimum payments, basically the interest (which is what they want of course). It got to where I could only afford interest only payments for 4 or 5 cards and each card was between $150 and $350. It just added up to too much. Interest only means the actual debt is never paid off, so this is just treading water rather than solving the problem. Of course you can only do this for so long. And if you miss one of these payments, guess what? More fees.

    I see the advantage to a proper Charge Card like Amex in terms of you can’t get in too deep. It’s sort of a safety net. It’s easy to talk about how if you can pay off before the month is out then why not just pay off the Credit Card monthly and avoid the interest. That works for a few months, maybe forever for you. Congratulations. However that’s making the naive assumption that nothing will change. Everything changes. Life’s full of surprises. It only takes one skipped pay check or some surprise emergency to throw your budget off. And it’s a slippery slope my friends. It’s designed to be. Credit Cards and banks make money when you are in debt. So they encourage that scenario.

    What I want to know is what’s the advantage to American Express? How do they make money here?

    Also will having and using an American Express card help or hurt my credit score? I don’t understand the comments above. They seem to go back and forth under certain conditions.

    For those who wonder what the penalties are for paying late or if there are any for not using the card, why not simply call Amex and ask them?

    • David Weliver says:

      Hello, :),

      To quickly answer a couple of your questions, I think that compared to a debit card, the advantage of a charge card (Amex is the only one in the states to offer them, I believe) is debatable.

      With Amex you get an “extra layer” of protection if you have a dispute with a merchant or you lose your card. In other words, if your card gets stolen, the money’s not coming out of your bank account. You can also use a charge card to manage your monthly spending even if your checking account goes up and down—but you don’t worry about going into long term debt.

      Amex makes money from the annual fee on these cards but also from the interchange fees they charge merchants every time you use your card.

      Finally, as to credit scores…these cards do not HURT your credit score, they just may not HELP as much as a credit card with a high credit limit. With the sole exception, perhaps, of somebody starting out trying to establish credit, I recommend deciding on whether a charge card is right for your spending habits rather that what it might or might not do to your credit.

  17. I’ve had an AmEx card since I was 18. Started off with Blue for Students which had no annual fee and a $500 dollar limit that rose to $2000 over time. Once I graduated and got a job, I upgraded to the Gold card. I charge everything I can to the card and pay it off in full each month. I spend enough money each month that I average about $600 in rewards each year, which more than pays for the $125 yearly fee. Also, recently I began to travel regularly to Africa on my Corporate AmEx, which I pay $70/year to have the rewards program for it added to my personal rewards account. Given that I charge around $80,000 a year to it, that ends up being $800 – $1000 more in rewards on top of my personal spending.

    AmEx reward points are as follows based on personal experience:
    100 pts = $1 for travel
    120 pts = $1 for just about everything else (which is pretty much anything you want)
    140 pts = $1 for AmEx gift cards

    There are also other benefits. One big one with the Gold is warranty extension. If you buy something with a warranty on it with an AmEx, they will automatically double the warranty, up to 2 years as long as you hold on to the receipt. They also have a concierge service that will book trips, concerts, and sporting events for you and in some cases AmEx has a reserved block of rooms/tickets that are only for customers. I used this once to get tickets to a concert that was already sold out. There are also additional insurance coverages for a range of things when traveling abroad, such as lost/stolen card replacement, giving you spending cash and a hotel room while you wait for your new card to be overnighted to you.

    I think the lesson here is to do the math and see what makes sense for your annual spending habits. It probably does not make sense to have an AmEx if you are a lower earner since you probably don’t spend enough for the rewards to offset the cost or earn as much as you could with a cash back credit card. However, those cash back cards have limits on how much you can get back, usually $500. So for higher earners who spend enough each month to surpase that $500 limit, it makes sense to go to an AmEx where they can earn more rewards.

    • Hey Drew. If you are spending $60k plus on a regular gold card you should upgrade. With the Gold Premier Rewards card you get an extra 15,000 points (about $150) annually when you spend over $30k a year. That would really allow you to maximize your points and make the annual fee cheaper than the basic green card!
      I have the Gold PR and LOVE it. It’s about the only card I use.

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