What is a Charge Card?

A charge card is a payment card that has an uncapped spending limit and requires the cardholder to pay off the outstanding balance in full at the end of each billing period.

What is a Charge Card?

A charge card is a payment card that enables you to make purchases by borrowing funds through a credit facility provided by your card issuer.

Like any credit instrument, you must repay the amount owed plus any applicable interest and fees.

Charge cards have two unique features that distinguish them from other payment cards.

First, there’s no explicit credit limit, which refers to the maximum amount you can charge to the card before needing to make a payment.

Thus, a charge card confers substantial spending power for the cardholder.

While this attribute may signal that you have free reign to spend, your card issuer establishes a specific credit limit when they create your account.

If you exceed this threshold, your transaction will be declined.

They assign this “hidden” credit limit based on your income, credit history, current debt load, spending patterns, and other factors.

Second, a charge card requires paying your balance in full each month.

Carrying forward a balance isn’t allowed or is at least heavily discouraged, as per the card’s terms and conditions.

Charge cards offer a variety of perks and rewards programs, much like credit cards.

You can collect points or miles and redeem them for things like airfare and hotel accommodation. 

For example, the American Express Platinum Card has a bonus-rate points model where you earn:

  • 3 points on dining and food delivery spending
  • 2 points on travel-related spending
  • 1 point on every other kind of spending

It also offers perks like travel insurance, purchase protection, fraud protection, and exclusive deals on shopping, dining, and travel activities. 

To acquire a charge card, you need to:

  • Be at least 18 or the age of majority in the province you reside
  • Be a Canadian citizen or permanent resident
  • Have a minimum credit score of 650

Did You Know?

The American Express Platinum Card offers a free online tool called “Check Spending Power” to help determine how large of a purchase you can charge to the card.

Charge Card vs. Credit Card

On the surface, charge cards function like credit cards, but there are some notable differences between the
two.

1. Charge Cards Don’t Have a Pre-set Spending Limit

A charge card doesn’t place limits on your spending power.

Instead, you can charge as much as you like to the card, as long as the amount isn’t overly excessive.

While there’s technically a credit limit, it’s considerably higher than that found on a typical credit card. 

Conversely, when you apply for a credit card, your card issuer will impose a strict credit limit on your account.

They assign this credit limit based on the risk of you defaulting on your payments, which they can ascertain by examining your income and credit report.

Your transaction will fail to process if you attempt to exceed your credit limit.

If you wish to increase your credit limit, you can contact your card issuer and go through the process with them.

However, in most cases, your credit limit will rise naturally over time, provided you keep your account in good standing by making timely payments.

2. Charge Card Balances Must be Paid in Full Each Month

When using a charge card, you’re responsible for paying your entire balance each month. 

If you fail to clear your balance by the due date, your card provider will either freeze your account or apply a penalty interest rate against your balance, which can be as high as 30%.

That being said, some charge cards permit you to carry forward a portion of your balance to the next billing period without any negative repercussions. 

With a credit card, you have considerably more room to manoeuvre when structuring your payment schedule. 

Carrying a balance into future periods is allowed, provided you contribute at least the minimum payment noted on your card statement.

If you pay the minimum amount, your card issuer will record your payment as being “on time.” 

3. Charge Card Options Are Limited

Charge cards are a rarity in Canada.

In fact, the only card issuer that offers them in the country is AMEX.

With credit cards, you’re spoiled for choice.

There’s an abundance of them at your disposal, each with its unique rewards programs, perks, annual fees, interest rates, and promotional offers.

Fact

Charge cards are listed as “open credit” items on your credit report since they don’t operate under a revolving line of credit.

Benefits of a Charge Card

1. Greater Spending Power

If your lifestyle necessitates easy access to a large amount of credit, there’s no better card to have by your side than a charge card.

2. Good for Disciplined Spending

The requirement to settle your balance each month can instill responsible spending habits and reign in out-of-control spending.

3. Fewer Interest Charges

Because there’s an incentive to clear your balance each billing cycle, you’re less likely to incur hefty interest charges.

Lady holding her charge card

Drawbacks of a Charge Card

1. Debt Problems

For some, the temptation to splurge may be too powerful to overcome with access to a charge card.

This tendency can result in a cardholder accumulating dangerously high levels of debt.

2. Steep Interest Rates

The annual percentage rates (APR) on charge cards are notoriously high.

Since charge cards are not meant for the user to carry any sort of balance, interest rates can be upwards of 30% if the balance is not paid in full.

3. Limited Selection

As noted previouslythere are relatively few charge cards to choose from in Canada.

Thus, shopping around to get a card that best suits your needs isn’t possible – you’ll have to make do with a narrow range of options.

Frequently Asked Questions

  • What is the purpose of a charge card?
  • Are charge cards easier to get approved for?

Mark is a freelance writer who specializes in covering personal finance topics related to investing, mortgages, credit cards, and more.

He is passionate about educating people on how the financial markets work and providing tips to help them better manage their money. Mark holds a bachelor’s degree in finance from the Northern Alberta Institute of Technology and has more than a decade of experience as an accountant.

Outside of writing and finance, he enjoys playing poker, going to the gym, composing music, and learning about digital marketing.