Key Insights to Remember
- Charge cards demand full repayment every billing cycle and come without a fixed spending ceiling.
- Because they lack a preset limit, these cards don’t factor into your credit utilization ratio.
- Your credit score can still be influenced by charge cards through consistent, on-time payments and prudent usage.
Unlike traditional credit cards, charge cards don’t permit carrying a balance from month to month — full settlement is mandatory each cycle. Their absence of a predefined spending cap offers an appealing option for those aiming to harness significant buying power without sliding into debt.
Do Charge Cards Influence Your Credit Score Like Credit Cards?
In many respects, yes — they do. The primary distinction lies in charge cards lacking a preset spending limit, which means they do not affect your credit utilization ratio.
How Charge Cards Play Into Your Credit Profile
When managed with care, charge cards can bolster your credit standing similarly to credit cards. Let’s untangle how they interact with key credit scoring components.
Payment History
The major credit bureaus — Equifax, Experian, and TransUnion — receive reports on your charge card use. When you fully clear your balance each month, charge cards can help demonstrate financial responsibility, boosting your creditworthiness over time.
Length of Credit History
The age of your credit accounts lends weight to your credit score. This factor accounts for about 15% of your FICO score and roughly 20% of your VantageScore, factoring in your mix of revolving and non-revolving credit. Charge cards count as part of this credit timeline.
Credit Mix
Diversifying the types of credit you hold — including charge cards — signals to lenders that you handle various financial obligations well. This can tip the scales favorably in credit scoring calculations.
New Credit
Opening fresh credit lines, whether loans or charge accounts, may temporarily lower your credit score but can enhance it over time if it broadens your credit portfolio.
Comparing Charge Cards vs. Credit Cards
Though they work on similar principles, charge cards and credit cards diverge in key ways:
| Balance Requirement | Must be paid in full each month | Minimum payment due monthly, balance can be carried with interest |
| Interest Charges | None | Applied on carried balances |
| Spending Limits | No preset limits | Typically capped, often correlating with security deposits |
| Annual Fees | Frequently significant | Varies; some do, some don’t |
| Minimum Credit Score Requirement | Often 670 or above | Available for a wide spectrum of credit scores |
Examples of prevalent charge cards on the market include business-focused options like the BP Business Solutions Mastercard and Shell Fleet Plus® Card. Notably, American Express has moved away from labeling many of its offerings as ‘charge cards,’ though some still carry hefty annual fees.
The Myth Surrounding Credit Utilization and Charge Cards
Typically, your credit utilization ratio—the percentage of available credit you use—affects your credit score. Since charge cards come without a fixed spending limit, they don’t factor into this ratio, sidestepping potential hits to your score from high spend levels.
This peculiarity can be a boon: making a hefty purchase on a typical credit card might push your utilization rate higher, potentially denting your score until you trim down your balance. But placing the same expense on a charge card won’t nudge your utilization figure, shielding that piece of your credit score from fluctuation.
Important Considerations
While your utilization stays untouched, your credit score still hinges on responsible repayment behavior. Consistent, timely payments and settling balances in full each cycle are crucial to maintaining or enhancing your credit profile.
Is a Charge Card the Way to Go for Building Credit?
Payment history reigns supreme as the dominant influence on credit scores. Whether you’re wielding a charge card or a credit card, punctual payments send positive signals to credit bureaus. Unlike rent, utilities, or phone bills, charge card payments are regularly reported, meaning your on-time track record truly counts.
Yet, because charge cards don’t influence your credit utilization ratio, they might not be as potent as traditional credit cards when it comes to raising your credit score. If your top priority is credit-building, a conventional credit card often holds the edge.
Choosing the Right Card for You
Deciding between a charge card and a credit card boils down to your personal financial needs and habits. Consider whether the strict monthly repayment conditions of a charge card align with your budget and if building your credit is your primary goal rather than other financial perks.
Both card types can assist your credit journey, so weigh all aspects of each option carefully before committing. If you need a hand sorting through the possibilities, explore tools that provide customized card recommendations based on your unique profile.
Note: Information about the BP Business Solutions Mastercard and Shell Fleet Plus® Card has been independently gathered and has not been reviewed or endorsed by the card issuers.
