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5 Signs a Charge Card Might be Right for You

Jan. 23, 2015
Credit Card Basics, Credit Cards
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If you’re having a hard time finding a credit card that meets your needs, it might be time to consider other options. Although your impulse is probably to turn to your debit card, don’t forget about charge cards. They offer many of the same benefits as credit cards, but with a few unusual twists that some folks appreciate.

Here are 5 signs that a charge card might be right for you:

1. You pay your balance in full every month

One of the key differences between a charge card and a credit card is that charge cards don’t provide the option to carry a balance from month to month. You must pay in full when the bill comes due or you’ll face a fee.

This is why charge cards (usually) don’t come with an APR – since you’re not going to be financing any of your spending, there’s no interest to be charged. But if you’re already paying your balance in full every month anyway, this will seem like old hat to you. If you plan to keep up this good habit, a charge card might be the right choice.

2. You tend to run a high balance every month

People who spend a lot on their credit cards every month are often stuck with the hassle of constantly checking their balances. This is because they’re trying to keep their credit utilization ratios in good shape so that their FICO scores won’t be jeopardized.

Nerd note: As a reminder, your credit utilization ratio is the amount of credit you have in use compared with your credit limit. If your credit utilization ratio exceeds 30% on any of your credit cards at any time during the month, you could be doing damage to the 30% of your FICO score that’s determined by amounts owed.

If this sounds familiar, a charge card could free you from this burden. Here’s why: Charge cards don’t come with a predetermined credit limit the way credit cards do. This means that a credit utilization ratio isn’t calculated for charge cards, so it’s ignored in FICO’s algorithm. As a result, you can run a sky-high balance every month and not worry about your FICO score getting dinged for credit utilization ratio reasons.

3. You’re looking for great rewards

One great feature that credit cards and charge cards have in common is that you’ll be able to earn rewards every time you swipe. Plus, most also come with a signup bonus and other fringe benefits that are hard to find in debit cards.

To put it simply, you won’t have to sacrifice a rewards program – the thing you probably love most about using credit – if you decide to make the switch to a charge card.

4. You’re trying to build your credit

Although credit utilization ratio isn’t a factor that will influence your FICO score when you’re using a charge card, the way you manage your account will affect your credit in other ways. Most importantly, if you pay your charge card bill on time every month, this information will be reported to the credit bureaus by your issuer and your score will improve over time. Obviously, the opposite will be true if you habitually pay late.

Charge cards impact your FICO score because they operate on a line of credit, just like credit cards. This is another reason that opting for a charge or credit card is preferable to using debit, which won’t help your credit score at all.

5. You’re comfortable with paying an annual fee

Some people don’t feel comfortable paying an annual fee under any circumstances – if this sounds like you, a charge card probably isn’t a good fit. Although there are lots of great no annual fee credit cards on the market, almost all charge cards will assess this cost.

But if you’re OK with forking over a little extra cash each year for a product that fits your lifestyle and spending habits, check out our favorite charge cards to get the ball rolling.

Image via iStock.