How a charge card can help you manage your money and reap rewards

A young lady buying goods

Charge cards work much the same way as credit cards in that they normally allow you to spend immediately and pay later.

In contrast to a credit card, a charge card has no interest charge and generally has no spending limit.

A charge card is also different in that you can't spread out your outstanding balance over a series of minimum monthly repayments. You have to pay off your outstanding bill in full every month or be charged with a late payment fee and/or have your card cancelled.

With most charge cards, you also have to pay an annual fee which can go as high as £450.

The upside to these stringent rules is that charge cards can include a range of attractive benefits, such as comprehensive travel insurance.

American Express are one of the main providers of charge cards in the UK, but some high-street banks also issue them. They tend to be targeted at high earners and high spenders who have the financial resources to keep up with their mandatory monthly payments.

Why would you want a charge card?

  • As there are no interest charges and as long as you meet your full monthly payments, a charge card can help you avoid falling into long-term debt. It can give you greater visibility on your day-to-day expenditure and as a result could help you budget better. Some business owners like charge cards because they can see exactly how much their employees are paying on expenses.
  • In return for your annual fee, charge cards often give you a wide range of rewards and benefits. Some offer membership rewards which give you points for every £1 you spend. These points can be cashed in for exciting treats such as meals cooked by celebrity chefs or days out at a luxury spa.
  • Benefits can include passes to airport lounges, concierge services, breakdown cover or worldwide travel insurance. Having these as part of the card rather than paying for them separately can, in some instances, offset the annual fee.
  • You can also get basic charge cards with no perks and no annual fee - these can help if you are focused on budgeting, as you still need to clear your balance each month.

What do you need to keep in mind?

  • The annual fees can be steep, although some cards do offer the first year for free. You need to calculate whether the annual fee and the rewards you receive leave you better or worse off than the interest you pay on a credit card.
  • If you miss a monthly payment you will be charged a late payment fee and on top of that you will have to pay interest on the balance at a penalty rate. If you are a repeat late payment offender, your card might be cancelled. You need to make sure that you have enough money to cover your purchases.
  • Be careful where you're using your card as some high-street chains don't accept them. Typically there are also fees on foreign transactions and cash withdrawals.
  • Carefully check membership rewards terms and conditions, such as limitations on travel insurance and concierge bookings being subject to availability.
  • Charge cards aren't covered by Section 75 of the Consumer Credit Act, which offers you protection on unsatisfactory goods and services.

Charge cards are generally aimed at high earners, so eligibility can be quite strict. You need to be over 18 years of age, have a current bank account and normally be earning a minimum annual income of at least £20,000. However, in reality, more stringent criteria are also likely to apply.

If you have a history of bad debt, it's likely your application won't be accepted. You need to have a strong credit rating. Make sure you get as much information on your credit score and the card's eligibility criteria as possible before applying, as multiple applications will show on your credit report and can count against you.

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