What is a Charge Card?

Not to be confused with a credit card, a charge card, is a means by which to purchase products and services on short-term credit. The most recognized company dealing in charge cards is American Express. Some other companies, including Diner's Club. In certain situations, MasterCard has also been trying to build a presence in the charge card market.

A charge card differs from a credit in a number of important factors. Understanding these factors is critical before using such a card. While many appreciate credit cards because they have the opportunity to make purchases and pay back the balance over time, often months or years, the charge card offers no such generous time frame. A charge card must be paid back by the due date of the next billing statement in full.

Unlike a credit card, a charge card usually comes with no preset maximum credit line. However, if the charge card issuer believes you may be unable to pay the company back when a statement is issued, charging privileges could be suspended. So while there is no preset limit, there is certainly a limit that a company will allow a consumer to charge before cutting off privileges. This is done purely as a protection for the company.

There is usually no interest associated with a charge card because there is no long-term debt. Charge card companies make their money in usually one of two ways: by charging for the use of the card and charging penalties in the event that a charge card balance is not paid or is not paid in full. Often times, the penalty on a balance not paid in full can be as much as 5 percent.

However, while charge cards often make it a general practice to collect the entire outstanding balance each month, some are starting to make exceptions to this rule. For example, American Express, in some cases and if a charge card holder enrolls, will allow an individual to charge travel expenses and pay them back over time. In addition, if single purchase is more than a preset benchmark, usually $200 US Dollars, that amount can also be paid back over a period of time. In this way, charge cards are very similar to credit cards.

Still, before making a major purchase or putting all travel-related expenses on a charge card, it is important for the cardholder to make sure these are options. If not, the cardholder could be left with a large balance and be assessed a significant penalty.