Charge cards

Charge cards are similar to credit cards, but you must pay the full amount borrowed each month. Find out whether a charge card UK could be right for you, or whether a traditional credit card might be more suitable for your needs.

Charge cards UK explained

A charge card in the UK is similar to a credit card, but has added perks and strict repayment plans. The key difference is that you have to pay your card balance off every month if you have a charge card. 

With a credit card you have more flexibility over when and how you repay the debt and you will not be as heavily penalised if you have outstanding borrowing on your credit card which you carry over from month to month.

UK charge cards are primarily aimed at high income earners and for businesses charging the company account.

What is a charge card?

UK charge cards are much like credit cards – they allow you to pay for goods and services on credit. The key difference is that with a charge card you must pay off your balance in full at the end of the month.

With a charge card you don't pay interest on any money you borrow, but you will have to pay an annual fee for the card.

This means that you technically only borrow the money for a short period, whereas on a normal credit card you are usually allowed to borrow for as long as you can keep up with the minimum monthly repayments plus any interest you owe.

Business credit cards and premium credit cards are often charge cards, and one of the best known providers of charge cards in the UK is American Express.

What are the advantages of charge cards?

One advantage of charge cards in the UK is that they often have no spending limit, making them convenient if you are a high spender or have to make expensive purchases on your credit card.

Many charge cards also come with discount or reward schemes and other perks, such as concierge services, travel insurance, breakdown cover or even access to exclusive airport lounges.

Depending on how much you use your card and the kind of rewards and extras included, you could find that they end up being worth the same as, or even more than, the card fee.

Charge cards can be good if you know you have the money to cover your purchase but just want to collect the benefits or enjoy the convenience of not having an upper spending limit.

They're useful if you want to make a large purchase as charge cards do not usually have a spending limit, whereas credit cards will often have a credit limit. Once you have reached that credit limit you cannot spend any more and your card may be declined until you have cleared your balance.

Charge card have a structure of benefits that mean that you often get more rewards as you spend more.

What are the disadvantages of charge cards?

A disadvantage of charge cards in the UK is that they are not suitable for borrowing over a longer period than a month, because your balance must be paid in full at the end of each month.

Although they don't charge any interest you do have to pay off the balance in full at the end of the month. Also, you will have to pay a fee to have a UK charge card. Most charge cards carry an annual fee of £100 or more.

If you don't pay your balance in full at the end of the month, you will have to pay late payment charges. This could damage your credit score and affect your eligibility for other forms of credit in the future including mortgages, broadband contracts, personal loans and other credit cards.

How do I get a UK charge card?

Charges cards are often subject to stricter acceptance criteria than other credit cards – for example there may be a high minimum salary requirement and you will probably have to have a very good credit rating to successfully apply for a UK charge card.

If you don't have such a good credit rating, or you need repayment flexibility, then a traditional credit card might be a better option for you.

If you're looking for a card that gives you perks and rewards and offers greater flexibility in paying off debt then you could consider a reward credit card instead of a charge card.

It is possible to combine benefits, perks and rewards with a credit card that allows you to borrow over a longer period. Some credit cards offer rewards while others have the incentive of giving you cashback on your spending. With cashback cards the APR (Annual Percentage Rate) is usually higher than average in order to discourage you from borrowing for long periods.

Reward cards could be a better option if you do not have enough disposable income to pay off your balance in full every month. Most credit cards will also have a smaller annual fee compared with a charge card. Some credit cards do not have an annual fee at all and offer a range of benefits and rewards.

What are the differences between charge cards and credit cards UK?

Charge cards and credit cards work similarly. You spend money on your card and pay back the borrowing at a later date. You can use charge cards and credit cards for all types of purchases, including one-off large items.

One of the best known providers of charge cards is American Express, but it also issues credit cards as well so it is important to know the difference.

Not all merchants and shops accept charge cards, and so you may find that your charge card is less widely accepted than an ordinary credit card.

Also, the fee for not repaying your debt is higher, and you will be charged an annual fee each year for having your charge card.

Who is a charge card most suitable for?

Many people who have charge cards have high incomes and are using their charge card for business, so they like the option to have a card where there is no spending limit.

If you want a card that gives you repayment flexibility, and you do not necessarily want to pay off your card balance every month, then you might want to consider a credit card.

Many people use charge cards and premium credit cards for business, particularly business travel. Their charge card may be linked to their employment, and give them perks at airports and hotels. In the current COVID-19 environment when there's less business travel, it may be that some perks that a charge card offers aren't as relevant as they used to be.

I have a bad credit rating but would like a credit card that rewards on purchases. What are my options?

If you are keen to reap rewards when you spend but are restricted by a bad or non-existent credit rating, the good news is that there are still cashback cards available to you. These are not nearly as rewarding as others on the market though, so your priority should be to rebuild your credit rating to make yourself eligible for these more competitive cards in the future.

To rebuild your score you will need to use your credit card regularly, never missing a payment and always staying within the limit.

Use your cashback card to get a small reward for repaying in full every month while you work towards rebuilding your credit rating. Only get these cards if you can pay the balance off in full every month as the interest rate is likely to be higher than standard cards.

If you end up building debt on these types of cards you could wipe out any cashback gains you might have made and risk landing yourself deeper in debt and damaging your credit rating further.

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