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Candice Choi

What’s the difference between a charge card and a credit card?

By Candice Choi
Associated Press / January 23, 2010

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It’s not a credit card or a debit card. If you’ve never had a charge card, you may wonder how it compares to the plastic you already carry. Charge cards - primarily issued by American Express - require cardholders to pay off balances each month. There are no interest rates or hard-and-fast spending limits.

The premise may intrigue anyone disgruntled by the imposition of harsher terms on their credit cards in the past year.

Yet charge cards aren’t for everyone, and come with their own costs and limitations. Here’s a look at how they work.

DO I QUALIFY? American Express doesn’t disclose its approval standards, but it’s safe to say you need a solid credit background to qualify.

WHAT ARE THE FEES? American Express charges annual fees ranging from $25 to $450. That includes membership to the company’s rewards program and additional perks. Whether an annual fee is worthwhile depends largely on your spending habits.

If you have a rewards credit card with no fee that you’re happy with, a charge card might not be worthwhile.

You also want to be sure you can pay your balance on time. Otherwise, AmEx charges a late fee of $35 or 2.99 percent of the balance (whichever is larger).

Depending on the type of card you have, you have 40 to 50 days from the close of your last billing cycle to pay. You’re normally given around 25 days to 30 days to pay credit card bills.

You can also apply for a flexible payment option, which lets you carry a revolving balance for travel purchases over $200. As with a credit card, you need to make minimum payments and interest rates are based on your credit profile. You can’t get cash advances with a charge card.

Finally, there’s a fee on foreign exchange transactions.

WILL I HAVE A CREDIT LIMIT? AmEx monitors your credit report and buying habits to continually adjust your spending limit. The company won’t tell you your cap, but you can call for guidance if you’re worried about a large purchase not going through. The upside is that you can’t incur over-the-limit fees.

If a lack of clear-cut boundaries concerns you, alerts can be set up to notify you when your balance hits a certain level.

American Express also recently rolled out an option that lets you set spending limits for additional cards on your account. So if you give your teenager a card, you could cap expenses.

WILL IT IMPACT MY CREDIT SCORE? To establish a credit history, there is no difference between charge and credit cards.

The tricky part is how charge cards affect a component of your score called credit utilization. This measures your outstanding balance against your available credit and counts for about 30 percent of your score. The lower your utilization, the better.

However, some organizations still use older credit scoring models that could distort your utilization of a charge card.

Candice Choi writes for the Associated Press.