Charge cards offer the same security and everyday convenience as credit cards, but they’re less common in Australia. While you can use a charge card in the same way for purchases in-store or online and paying your bills, there are some key differences: charge cards don’t have a pre-set credit limit, and you must repay the entire balance every month.
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How do charge cards work?
When you pay for something with a charge card, you get credit from the issuer to buy the goods and services now and pay for them later.
The issuer tallies up the amount you spent on your charge card over a set period, typically 30 days, and sends a statement to you. You’ll have another 14 to 21 days from the end of the statement period before the closing balance is due. So you could have up to 44 or 51 cashflow days from the time of your purchase to pay it off.
Credit cards work similarly, but you can make a minimum payment rather than repaying the entire balance and carry outstanding amounts from month to month. Interest is charged on the unpaid balance unless you have a flat-fee, no-interest credit card. Most credit cards give you a certain number of interest-free days.
While credit cards have a predetermined and fixed credit limit, charge cards have no spending limits, which doesn’t mean you have infinite credit. Instead, each charge is approved based on several factors, including your spending patterns, credit history and personal resources.
Advantages of charge cards
Although credit cards of all types are far more common in Australia, charge cards can be an effective financial tool for some people.
Some of the potential benefits of charge cards include the following:
- Payment deferral. As you can retain cash in your bank account for longer, it could help to manage your cash flow.
- Avoiding debt. Paying the total balance every month allows you to use short-term credit without incurring debt and interest.
- Greater purchasing power. A flexible spending limit means you can pay for purchases without worrying about going over your credit limit.
- Earning rewards. Many charge cards allow you to participate in membership rewards programs where you can accumulate points on your spending and then use them for various rewards, including flights, hotels, other travel costs and gift cards. Some charge cards offer a better earn rate than standard credit cards, so it may be possible to earn more points per dollar spent.
- Lifestyle and travel benefits. Charge cards sometimes provide access to airport lounges, travel credit and hotel loyalty programs. You could get exclusive benefits like concierge services, dining benefits, shopping credits and news subscriptions with premium charge cards.
- Insurance and emergency assistance. Charge card providers often include extras like travel insurance, card purchase cover, card refund cover and buyer’s advantage cover. You might also have emergency roadside and home assistance. It’s essential to find out if these products will give you adequate coverage.
- Fraud protection. A majority of card issuers will not hold you responsible for unauthorised charges, but you’ll have to check the fine print to understand the rules on how to make a claim and if there are limits to how many or how much you can claim.
Disadvantages of charge cards
Unless you plan to use your charge card frequently, it may be difficult to maximise its rewards and benefits programs to justify the annual fee — which is often hundreds of dollars, or sometimes even more than a thousand dollars a year. Unlike some credit cards, annual fees on charge cards are typically not discounted or waived in the first year.
You’ll probably incur a late fee if you don’t repay your charge card balance by the statement due date. Your credit score could be damaged, too, if the card issuer reports the missed payment to the credit agencies. Remember, you can’t just pay a minimum amount to avoid a late fee — you have to pay the whole balance.
Some people may find charge cards less flexible because they’re only designed for making purchases — you can’t transfer balances onto them.
Generally, you’ll need to meet higher income requirements and good to excellent credit to apply for a charge card.
Charge card vs. credit card
Whether you’re better off with a charge card or credit card comes down to a few factors.
A charge card could be preferable if you:
- Want greater purchasing power.
- Plan to use the card frequently.
- Can pay off the balance every month.
- Can afford to pay a higher annual fee.
- Want to join a rewards program and enjoy perks without the risk of debt.
However, as there are far more credit cards on the market, it might be easier to apply for one that suits your budget and is more aligned with your interests, spending habits and financial needs.
You can repay your balance over an extended period with a credit card. And, like a charge card, you can avoid interest and debt with a credit card by repaying your balance in full every month. Credit cards also allow you to take advantage of features not available on charge cards, such as balance transfers.