Charge Cards

Updated 22 September 2020

While they may look like credit cards – and in many ways act like credit cards – charge cards are fundamentally different in the way they work. With a credit card, you can spend up to your credit limit, then, if you choose, carry that balance month-to-month, as long as you make the minimum monthly repayment of 2-3%, as determined by your cardholder. You will, of course, pay interest on your balance as you do this, but the choice is essentially up to you.

On the other hand, if you have a charge card, there is no option to carry over your balance month-to-month. You must pay your balance in full, or risk paying late fees. So, how much can you spend on a charge card? Unlike credit cards, charge cards have no set spending limit. But, that doesn’t mean you have access to unlimited spending.

Instead, when you use your charge card, your card provider will decide whether or not to approve each purchase based on a number of factors. These factors may include your credit score and income, your repayment history and your established spending patterns. Over time, as you build a relationship with your card provider, the amount you can charge to your card should increase.

So, what do charge cards offer in the way of features? Like credit cards, many charge cards offer cardholders the opportunity to earn rewards. Higher end charge cards may also offer features such as airport lounge access, insurance covers, concierge services and other perks often featured on premium credit cards. And the cost? Again, as with credit cards, charge card annual fees vary according to the features and rewards on offer.

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Time to switch to a charge card?

Just like credit cards, charge cards are not for everyone. But, for the right user, a charge card can offer any number of benefits. With no pre-set spending limit, charge cards can help cardholders improve their cashflow. Cardholders could also earn rewards on their spending, while also saving big on interest with no revolving balance. From business cards to personal cards, from the basic to the feature-packed, there are charge cards to suit all needs and budgets.

Charge Cards: The Basics

With a charge card, you ‘charge’ each purchase you make on your card to your account, then at the end of the month, you pay off all of your purchases, clearing your balance to zero. This obviously works in a different way to a credit card, with which your card provider provides you with credit, that you can pay back in your own time, with interest charges applied.

So, how does a charge card work? With a charge card in your wallet, you will pay an annual fee, much like you would with a credit card. The annual fee you pay will typically depend on the rewards and features on offer, but you may find that in general, annual fees on charge cards are higher than credit cards, as there is more risk involved for the card provider.

And of course, there is no interest either. Cardholders who carry a balance on their credit card will pay interest to their card provider. Charge card providers – while charging late fees to cardholders who don’t clear their balance on time – don’t have that source of revenue. So, to offer charge cards to their customers – along with all those costly features – they tend to charge slightly higher annual fees.

Types of Charge Cards

Unlike credit cards, there aren’t any no frills charge cards to speak of. While there are more basic options, even those are not what you’d call low cost. That’s why charge cards tend to work better for cardholders who want something more from their card, such as rewards or features, and who generally don’t mind paying a bit more for the privilege.

Rewards Charge Cards: Here in Australia, charge cards typically offer rewards as standard. With the charge card market dominated by American Express, that means charge cardholders earn points on American Express’s Membership Rewards program, or its affiliates. Higher end rewards charge cards may also offer travel related perks, such as airport lounge access and insurance covers.

Gold and Platinum Charge Cards: Charge cards are tiered, just like credit cards. Basic charge cards tend to suit smaller spenders, while gold and platinum charge cards work better for those who channel a larger spend through their card. With higher annual fees, these cards also offer more features, such as concierge services, hotel stays and upgrades on travel.

Business and Corporate Charge Cards: American Express in particular, offers a number of charge cards to business users. With no pre-set spending limit and the opportunity to take advantage of rewards on business spending, charge cards can work extremely well for business users – as long as they can cover the card’s annual fees, while also clearing their balance each month.

Using A Charge Card

So, you’ve got a charge card in your wallet – how do you use it? Day to day, you can use your charge card just as you would a credit card. Keeping track of your spending to make sure you don’t overspend, simply use your card to make the purchases you need. This could be your morning coffee, your weekly grocery shop, or your quarterly electricity bill.

Using your card often – while sticking within your budget – will allow you to earn more rewards, maximising the value of the card and making the annual fee worth paying. Then, at the end of the month, be sure to pay off your balance by the due date to avoid any late fees being charged to your account.

Over time, your good repayment behaviour and established payment patterns should allow your card provider to get to know you better. This should allow you to charge more to your card when needed, while still remaining within your budget to allow you to pay it all back.

Earning Rewards

One of the things many charge cardholders like about their card is the opportunity it provides to earn rewards. With American Express providing the bulk of Australia’s charge cards, we’ll focus here on American Express’s rewards program, Membership Rewards.

In terms of points redemption, Membership Rewards offers a number of options. Cardholders can use their points to cover eligible purchases made on the card, to shop at David Jones or pay for tickets at Ticketmaster, or to redeem against gift vouchers with retail, entertainment and travel partners.

Travel is also a good option. Members can use their points booking travel direct with American Express Travel Online, or alternatively, to book with Webjet or Helloworld Travel.

The program also offers the option to transfer points to partner airlines (Air New Zealand Airpoints, Cathay Pacific Asia Miles, Emirates Skywards, Etihad Guest, Malaysia Airlines Enrich, Singapore Airlines KrisFlyer, Thai Royal Orchid Plus, Virgin Velocity and Virgin Atlantic Flying Club), or to hotel partners programs, Hilton Honors and Marriott Bonvoy.

It’s also worth pointing out that American Express don’t have points caps, which is good news for big spenders. There are also quite a few bonus points intro offers out there, which can help new cardholders boost their points balance (typically after making an eligible spend).

Using Its Features

As with credit cards, the features included on a charge card will usually depend on its annual fee. Basic options with lower annual fees tend to offer fewer features, while higher end charge cards with higher annual fees generally offer more features. So, what features can you expect?

On a premium charge card, you could benefit from travel credit each year that can be used against flights, car hire, hotel stays and experiences; access to a premium concierge service; worldwide airport lounge access, and extensive insurance cover on both travel and retail purchases.

Charge Card or Credit Card?

Credit Card Charge Card
Credit Limit Fixed credit limit, determined by income and credit history. No pre-set spending limit, but transactions approved according to income, credit, repayment history and spending patterns.
Repayments Balance may be carried indefinitely as long as cardholder pays 2-3% minimum monthly payments (with the balance attracting interest). Balance must be paid in full each month.
Interest Interest will be applied to purchases and cash advances. No interest, but late fees will be applied if the balance is not paid in full.
Fees Annual fees apply (except on no annual fee cards). Other fees such as ATM, cash advance and international transaction fees may apply. Annual fees and late payments apply. Cash advance, ATM and international transaction fees may also apply.
Balance Transfers Balances may be transferred onto the card to benefit from a lower rate, which can then be paid off over time. Charge cards do not offer this facility.
Eligibility Income requirement varies according to the type of card. High minimum income requirements.
Whether you choose a charge card or a credit card will really depend on how you plan to use the card. If you know you will be able to pay off your balance in full each month, a charge card could be a good fit, especially if you don’t want to be restricted by a set credit limit. However, in order to be approved, you will need to meet the card’s eligibility requirements.
If you want to take advantage of the various benefits a charge card can offer, this type of card could work well in your wallet.
  • You don’t want to pay interest: Using a charge card, you will pay no interest. With that being said, you will need to pay your balance in full each month to avoid late fees.
  • You want to improve your cash flow: Unlike credit cards, a charge card has no pre-set spending limit. This can be handy for both individuals and businesses who want more freedom in their cash flow and greater spending power.
  • You want to earn rewards: With a charge card, you can get something back on your spending as you earn rewards. As you have no pre-set spending limit, this increased spending power could see your points total grow faster, working well as long as you can clear your balance at the end of the month.

The process of comparing charge cards is similar to the process used to compare credit cards. First, think about what you need from your card, how you will use it, and what you can afford to pay out on it.

  • Annual Fee: Taking into consideration the features on the offer and the rewards you will earn, you should be able to work out what kind of value each card will provide. Compare that with each card’s cost in annual fees to choose the card that will offer the most value to you.
  • Features: Whether you need loads of extras or none at all, compare the options to find a card that matches your needs. In terms of rewards, look at your annual spend to work out whether the value of the rewards you would earn on each card is more than what you would pay out for it.
  • Eligibility: Charge cards often have higher minimum income requirements than most credit cards. An excellent credit history is usually required, and you may need to have an annual income of $75,000 or more to be approved.
In Australia, American Express rules the charge card world. Check out the range of charge cards offered above to compare their fees and features and find the card for you.

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