Everything you need to know about charge cards and how they compare to credit cards.
Charge cards can be a convenient way pay for your shopping online or in-store. They work in a similar way to credit cards, with your provider paying for the transactions you make and then billing you at the end of the statement cycle. But there are also some key differences between charge cards and credit cards, including your payment requirements. Read on to find out how charge cards work and whether they’re the right option for you.
How do charge cards work?
Charge cards have no set spending limit and require that you pay your full balance off by the statement due date, which is usually the end of the month. This is different to credit cards, where you only have to repay a small portion, usually about 2-3% of the entire balance each month. As such, a charge card is not a revolving line of credit and does not come with an interest rate. Instead, you will be charged a late fee if you fail to make the full repayment on time. The structure and payment requirements of charge cards also means that they tend to have higher minimum income and credit history requirements than some credit cards.
Charge cards often come with a range of benefits such as membership rewards, travel insurance, airport lounge access, concierge services and purchase and fraud protection. They also usually have high annual fees to offset the cost of these features and reduce the lending risk for issuers.
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What types of charge cards are there?
Rewards charge cards
If you want to get something back for using your charge card, a rewards charge card could be right for you. As well as earning rewards points for every dollar you spend on eligible purchases, these cards offer other perks such as airport lounge access, complimentary insurance and concierge services. Please note that these premium features often come at the cost of a high annual fee.
Gold and platinum charge cards
Gold and platinum charge cards are designed to suit big spenders who are looking for premium perks. Depending on the card, you could get luxury rewards including fine dining, five-star hotels and elite travel benefits. You’ll also receive higher protection in the form of high complimentary insurance covers and platinum concierge services. These cards usually come with higher fees and are best suited to high income earners.
Business and corporate charge cards
This style of charge card caters to businesses. The type of card you choose should largely depend on the type of business you own. Business charge cards cater for small businesses whereas corporate charge cards cater for larger corporations. Similar to personal charge cards, business charge cards also come with rewards programs, travel insurance and concierge access. Corporate charge cards may include features for tracking company and travel expenses, while also offering a degree of flexibility and control over those expenses.
How to compare charge cards
Make sure you consider the following factors when you compare charge cards so that you can find the right option for you.
- Annual fee. This is a yearly fee for maintaining your charge card account. If the annual fee for this type of card is very high, make sure it’s offset by extra incentives and benefits you will use. For instance, if you rarely travel, it would not be worthwhile for you to pay a high annual fee for a charge card offering premium travel advantages like airport lounge access and comprehensive travel insurance.
- Minimum income. The minimum income requirement varies between charge cards, with platinum cards requiring a higher annual income than gold cards. Check income requirements for charge cards you’re considering to find one that is suited to your current income level.
- Rewards. A card with a good rewards program and high points earning potential can be a great way for you to profit from your expenses. Rewards programs vary from card to card, so it’s important to make sure that the card you choose allows you to earn and redeem rewards that you want, such as gift cards, frequent flyer points, and hotel stays.
- Cash advance fee. Where applicable, you will be charged a cash advance fee for using your charge card to withdraw money. This could be a minimum fee or a percentage fee similar to the cash advance interest fee charged by credit cards. Please note that this fee is generally much higher than other fees that may apply to charge cards. Not all charge cards allow cash advances though, so you’ll want to factor this into your comparison.
- ATM withdrawal fee. If your charge card allows cash advances, this fee may apply on top of the cash advance fee when you withdraw cash from the ATM.
- International transaction fee. This is the fee applied to any international transactions made on your charge card, whether you’re shopping online or overseas.
- Billing period. This will determine when you have to pay off your charge card balance. Usually you will receive a statement once a month, but some cards may offer more than 30 days between payments. Make sure you check the terms and conditions for your card so that you can spend and budget accordingly.
Charge cards vs credit cards
|Feature||Charge cards||Credit cards|
|Card balance||Card balance must be paid in full each month.||Card balance can be carried indefinitely as long as 2-3% monthly minimum repayment is made.|
|Interest rate||No interest rate but a late fee penalty applies if the balance is not paid in full.||Interest fees apply for purchases and cash advances.|
|Credit limit||Unspecified credit limit.||Fixed credit limit.|
|Card fees||Annual fees for card usage, and penalty fees when a payment is late. Cash advance, ATM and international transaction fees may also apply.||Annual fees are sometimes waived, but other fees such as ATM, cash advance and international transaction charges may apply.|
|Eligibility requirement||Strict income and high credit rating requirements.||Varying income and credit rating requirements.|
|Credit/ loan facility||Charge cards are suitable for spending in the short-term but are not loan facilities.||Credit cards support loan consolidation and allow you to spread repayments over an extended period.|
How to apply for a charge card
Applying for a charge card is simple and can be done online in a few minutes. The eligibility requirements vary from card to card, but some of the general criteria include:
- Age. The age requirement is generally at least 18 years old.
- Citizenship. You typically need to be an Australian citizen or permanent resident.
- Annual income. Different cards will require different pre-tax income levels ranging from $20,000 to $100,000 and above.
- Good credit record. Most charge cards require that you have a high credit rating, and that you have no history of bad debt or payment defaults.
Remember that the full balance on your charge card needs to be repaid and cleared every month, and charge cards do not offer the same features as credit cards or other loans. With an unspecific spending limit, you could easily overspend on a charge card and find yourself unable to repay your balance. This could lead to late fees, additional charges and even impact on your credit history. If you are looking to borrow over an extended period of time, consider credit cards instead.
Frequently asked questions
How much can I actually charge to a charge card?
People have been known to pay for half-million dollar supercars on their charge cards. However, charge cards are not always limitless, and purchases are approved based on factors such as established spending patterns, credit ratings, repayment history and declared financial resources. As you establish a relationship with your charge card provider, the amount chargeable to your card should increase.
Can I get supplementary charge cards for my family or employees?
This is usually possible as long as the nominated family member satisfies the card provider’s requirements, such as being over 18 years of age. You, as the main cardholder, will be completely liable for all supplementary card spending.
Can I get a charge card if I used to have a payment default on my credit report that has since disappeared?
Depending on your card provider’s stipulated requirements, this might or might not be possible. American Express, for instance, explicitly requires a declaration that “I have no history of bad debt or payment default”.