Charge cards offer aspirational rewards and benefits to those who can clear their card balance every month.
What are charge cards?
Although less popular than credit cards, for reasons we will come to, charge cards predate credit cards by a decade, and were the first mass-market payment cards, enabling people to pay in different stores with the same card for the first time.
How do charge cards work?
Charge cards look and feel like credit cards; they can be used with same merchants as credit cards, and use chip and pin technology that other payment cards to secure transactions.
The main difference between charge cards and credit cards is that charge cards do not give their cardholders the opportunity to revolve their credit. Both products enable up to 56 days interest-free credit on purchases, the period between the first day of the billing cycle and when the account must be paid. However, assuming you have made your minimum monthly payment, credit cards permit their users to roll their remaining balance on, to be paid at some point in the future. Charge cards do not offer this rolling-credit function. Charge card accounts must be settled in full every month, so the minimum monthly payment is the total balance accrued within the billing cycle.
What are the benefits of charge cards?
Given the restrictive nature of charge cards, which do not offer a revolving credit facility, they do need some pretty impressive benefits to encourage people to apply. On this count, charge cards do not fail to live up to expectations. Charge card rewards and benefits are numerous and generous, including:
Airport Lounge Access
Many charge cards offer cardholders access to worldwide airport lounges, which offer solace to travellers in busy airports, and complimentary drinks and snacks.
Sometimes a nominal fee is incurred (lower than charges for independently booked use), but some premium charge card products offer free unfettered access.
Premium charge cardholders often receive complimentary access to a dedicated concierge service. This can be used to plan and book restaurants, travel, and entertainment (including tickets to shows that are officially sold-out).
No Credit Limit
Unlike credit cards which fix credit limits to ensure users do not become over-indebted, charge cards do not impose credit limits on their users, and their cardholders are free to use them as they see fit - so long they repay what is owed every month.
Although charge cards users do not enjoy the statutory protection that Section 75 gives UK credit card holders, most charge card issuers offer their own purchase protection schemes, which can be competitive.
For instance, although charge card purchase protection is for less than the £60,260 available with Section 75, it often offers protection for lower value goods than Section 75 protection, which starts with transactions from £100. Also, unlike Section 75, charge card purchase protection often also covers users against damage or theft of the products they have purchased.
Reward program membership is perhaps the most obvious benefit that charge card issuers offer their customers. These programs differ from card-to-card, but they are typically far 'richer' (more valuable in cash terms) than credit card equivalents. Furthermore, to encourage applications and spend, many charge card issuers offer generous sign-up points bonuses.
Points are earned every time you shop with your charge card. They can then be exchanged within the program for complimentary hotel reservations, gift vouchers, deals on shopping and entertainment, or swapped for points with popular frequent flyer programs.
If you use your card to book your travel, you will automatically qualify for the free travel insurance that many charge card providers offer users. Many will also offer international help and advice to travellers in an emergency.
Where available, some charge cards offer users free hotel room upgrades.
Who offers charge cards in the UK?
Charge cards do not tend to receive the same level of media exposure in the UK as credit cards do, but they are still available from a number of UK banks and issuers, including:
In some instances these products are only available to those who have a qualifying (packaged) bank account, or are only available for commercial use. However, others are freely available to personal customers with no prior relationship with the card issuer.
Can I get a charge card?
Because charge cards do not impose a credit limit on their users, who can spend at will, their eligibility criteria are amongst the toughest for payment card products. Any history of bad debt reported in your credit files, is likely to prevent you from obtaining one. Equally, these cards are meant for high spenders, so you'll need to be a high earner too. If your income doesn't meet the card issuers’ strict requirements, your application will be rejected.
Charge card considerations
Although there can be advantages to charge cards, there are things you should consider before applying.
No credit whatsoever
The main disadvantage that charge cards present is the fact that you'll have no option to roll your balance on if you need to. If you have savings to pay your balance with, this might not be an issue, but if you have an irregular income, you should be wary of charge cards.
Unlike most credit cards, charge cards incur an annual fee. These fees vary from card to card (and are sometimes waived in the first year), but for those used to free credit cards, they can appear very expensive.
Charge cards enable you to shop (and earn rewards), but that is all they offer. Unlike credit cards, which enable their users to transfer balances to the card from other accounts and offer other useful money management features, charge cards are simply a tool for charging purchases to an account.
No Section 75
Although charge cards offer purchase protection which has some advantages when compared with Section 75 protection, it is not statutory. This means it could be withdrawn with a change of the card issuer’s conditions. It is also not as extensive as Section 75, covering relatively small amounts. If you're making purchases of over £300, then a credit card will undoubtedly offer better protection.
Redeeming points for rewards is a straightforward process. Most charge card issuers have developed good online portals. These enable you to check how many points you'll need for particular rewards, and exchange them by adding your desired reward to your basket and supplying your password.