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Do charge cards affect my credit score in the same way as credit cards?

Aug. 20, 2014
Credit Cards
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Charge cards and credit cards might appear exactly the same on the outside, but don’t be fooled: These are two very different things, with each having a different effect on your credit score.

With a charge card, you don’t actually ever carry a balance on the card, so there is no credit limit. You use the card to make purchases which are paid for by the card issuer, then you are also required to pay off your bill each month in full.

Credit cards, on the other hand, allow you to carry a balance of debt and do not need to be paid off in full each month. If you carry a balance, you can end up paying interest on your balance.  Credit cards have a specific credit limit that you cannot exceed, unlike charge cards, which typically don’t carry spending limits.

Charge cards vs. credit cards: how do they affect your credit score? 

First, it’s important to understand what factors make up your credit score:

  • 35% of your credit score is your payment history. Late or missed payments have a negative affect on your score, while making payments on time each month has a positive effect on your score.
  • 30% of the score is amounts owed, also known as the debt utilization ratio. In general, the higher your credit utilization, the lower your credit score. If you have a $10,000 credit limit and have $3,000 on all your credit cards, your debt utilization ratio is 30%. It is a good idea to keep this percentage under 30% as it shows lenders that you are responsible with your spending and paying off your debt.
  • 15% is the length of your credit history. Your credit score factors in things like how long your credit accounts have been open, the age of your oldest account and the average age of all your accounts.
  • 10% is the types of credit in use. Having credit cards and installment loans with a good payment history will increase your credit score.
  • 10% is new credit, and how many new accounts you have by the type of account.

Since 30% of your credit score depends on your debt utilization ratio, a charge card would have zero effect on your credit score. This is because you are not actually buying anything on credit, so credit bureaus don’t include them in their debt utilization ratios.

When it comes down to it, the most important part of your credit score is whether or not you are responsible with making payments on time. With a charge card, your payment history is still taken into account, so if you pay your charge card on time each month, your score should rise.

Having a charge card also increase the average length of your credit history. Combined, your payment history and average length of credit lines make up 50% of your credit score.