Charge cards can help you build credit, but they differ from traditional credit cards — here's how (2024)

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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 is a charge card?
• What are charge cards used for?
• Examples of charge cards
• How does a charge card affect your credit score?
• Bottom line

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.

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.

Charge cardsare offered by alimitednumber ofcompanies and most are geared toward businesses, such as the Brex Business Card and The Plum Card® from American Express.

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.

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 aclosed accountcan 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.

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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.