Most of us use at least one credit card. While they are the most common, there is another kind of card that can outdo your average credit card in terms of spending limit and rewards. You might not be too familiar with the charge card, but it is a more elite sibling of the standard credit card. “While more than 50 million credit cards are already in circulation in the country, there are not many banks or financial institutions which issue charge cards,” said Raj Khosla, founder and MD, MyMoneyMantra.com, a financial services firm.
In fact, American Express is the only provider that offers the retail variety of charge cards. “Other banks or institutions provide charge cards in the form of corporate cards. All corporate cards are charge cards as these are issued in the name of the company,” said Khosla. Read on to find out more details about these cards.
Charge cards are branded cards that can be used for purchases and payments at any point of sale or online payment gateway that accepts the brand. But there is one key difference. “Credit cards generally have a credit limit of three to four times of your monthly income. Charge cards come with higher limits and frequently with no pre-set spending limit,” said Khosla.
You are clearly told your credit limit when you are issued a credit card, but this is not the case with charge cards. While they do have spending limits, these are not “pre-set”. This means that they can easily be changed to suit the needs of the card holder. Compare this to the far less flexible spending limit of a credit card. The limit can be extended over time, they can’t be changed as easily. Unlike charge cards, with a credit card, the limit only goes up as your credit score improves, and you remain a loyal customer who pays the bill regularly.
Another major difference between charge cards and credit cards is the requirement to repay the outstanding amount.
“On a charge card, the entire outstanding must be paid by the payment due date, while on a credit card, even a percentage of the total outstanding, usually called the minimum amount due, may be paid and the card may continue to be used,” said Piush Jha, head, product and portfolio management, BOB Financial Solutions Ltd, a financial products and services company.
This automatically gears charge cards more towards the financial elite. “Charge cards are typically meant for high earners as they do not allow the card holder to revolve the balance. Credit cards, however, are used by a diverse base of customers and offer greater flexibility in bill payments,” said Khosla.
A credit card allows you to pay a minimum balance to keep the card going while it levies an interest on the outstanding amount whereas in case of a charge card, there is no minimum payment threshold. You have to pay the monthly balance in full. If you don’t, there is a very high interest or delinquency fee applied on the outstanding amount. “A charge card will carry a fee in most cases as there is no interest income unlike a credit card, which may be offered free for a certain period or against a minimum amount of spends,” said Jha. In essence, the delinquency fee works out to be like the interest rate you would pay on a rolled over credit card bill.
For instance, on its platinum card, Amex charges delinquency fee at the rate of 3.5% of the unpaid if the full bill amount is not paid off by the payment due date each month. Unpaid delinquency fees are then added to the overdue amount, and the compounded amount has the delinquency fee levied on it for the next billing period if it’s not paid off in full.
High costs, great rewards
Charge cards are typically aimed at an elite user base and, therefore, offer rewards and benefits that are premium and differentiated. “The target customers are 40-50-year-old self-made entrepreneurs and professionals who travel frequently, both domestically and internationally. The platinum card offers exclusive experiences, and personalized services such as a 24×7 dedicated platinum concierge that supports the card members’ needs,” said Manoj Adlakha, chief executive officer, American Express Banking Corp., India.
But the annual charges can also be extremely high. For instance, American Express offers two charge cards in India. For the gold card, which is the more reasonably priced of the two, you will have to pay a fee of ₹1,000 for the first year, and ₹4,500 the second year onwards. The annual fee for platinum card is as high as ₹60,000. A lot of credit cards don’t charge an annual fee at all or charge a very nominal one even though there are cards that charge an exorbitant fee was well. But chances are, the no-frills cards will offer very basic rewards.
If you are a frequent traveller and high spender with the wherewithal to pay off your credit card bill in full, you could consider a charge card. Of course you will have to meet the provider’s criteria for a potential charge card holder. But if you are not keen on paying high annual fees, it’s best to steer clear of them and stick to a good old credit card, which can also help rein in your spending as they have a non-negotiable upper limit. Keep in mind that maxing out your credit cards can have a negative impact on your credit score.