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Update: Some offers mentioned below are no longer available. View the current offers here – The Business Platinum Card from American Express OPEN, The Business Gold Rewards Card from American Express OPEN, Starwood Preferred Guest Business Credit Card from American Express, Ink Business Cash Credit Card, CitiBusiness AAdvantage Platinum Select World Mastercard, The Plum Card from American Express OPEN
Today, TPG Special Contributor Eric Rosen explains the differences between credit cards and charge cards, and looks at the benefits of each.
When it comes to points and miles, personal credit cards are just one piece of the puzzle. Business cards can be another great way to rack up rewards for the travel you want, and you usually don’t even have to have a formal business in order to qualify for them.
There are several reasons you might consider applying for a business card, including the sizable sign-up bonuses; useful category spending bonuses; business perks such as discounts at partner merchants; or to keep your personal and professional expenses separate. For a primer on business credit cards and how they differ from personal credit cards, read this recent post by TPG Senior Points & Miles Correspondent Nick Ewen.
If and when you decide to apply for a business card, another question arises: Should you get a credit card or a charge card? The difference between charge and credit is probably one of the least understood aspects of the card marketplace, but it’s worth noting as you craft your points strategy, as which card or cards you get could impact your credit score and your entire financial profile.
In this post, I’ll provide a basic overview of business credit cards versus charge cards, including how they compare and which ones might be right for your needs.
Similarities Between Charge and Credit
Both credit cards and charge cards are essentially unsecured lines of credit extended to you by a financial institution. When you charge purchases to either a credit or charge card, you’re basically getting a short-term loan from a bank, which you are expected to repay at the end of each month, or pay either interest or late fees (more on this below).
You apply for both types of cards using your own personal credit history as a guarantee, so your personal credit score will impact your application, and you may see a 2-5 point dip in your score when applying for business cards because of the hard credit inquiry some issuers place on your report.
Credit cards and charge cards might also offer rewards based on your purchases or activity, and both types of cards typically levy various fees such as annual fees, late fees and, in some cases, foreign transaction fees.
Differences Between Charge and Credit
There are a number of major differences between charge and credit, which can determine which type of card is right for you and your needs. These differences are worth keeping in mind not only when you apply for a card, but also when using it. If you’re looking for a primer on the topic, this article from My FICO is a good, simple resource to start with.
1. Spending and Credit Limits
Credit cards (both personal and business varieties) typically offer a preset spending limit based on the financial information you provide when you apply for a card.
Charge cards do not come with preset spending limits. This allows cardholders the flexibility to charge large purchases without prior authorization from their financial institution and with no need for an additional credit check to increase the credit line. However, that doesn’t necessarily mean you have unlimited spending power. Though there are no preset limits, financial institutions do typically put some limits on a cardholder’s spending that can be adjusted over time based on the cardholder’s spending habits and financial situation.
2. Balances and Interest
Credit cards allow you to carry a balance from one billing period to another, though you’ll usually be charged interest on that balance, and you must pay at least a certain minimum of it each month.
Charge cards do not allow cardholders to carry balances from one month to the next. Instead, you must pay off the entire balance each billing cycle, or you can be hit with huge late fees (typically about 3% of the total balance) and have your line of credit suspended entirely.
3. Impact on Credit Score
When it comes to calculating your credit score, your debt-to-credit ratio counts for 30%. That ratio represents the amount of credit you’re currently using (i.e., your monthly activity and balances) compared to your overall credit limit. This number may be calculated differently based on the type of card you’re using.
Credit cards have preset spending limits, so your debt-to-credit ratio increases as you make purchases, and this can drag down your credit score. That creates some disincentive to use a credit card for big purchases regularly.
Charge cards do not have conventional credit limits, so their activity is accounted for differently when determining your credit score. Older credit scoring systems (that are still in use by some issuers) actually take the highest balance you’ve ever had on a charge card as your credit limit for that account. That means charging a lot to these cards (and paying them off on time) can actually improve your credit score.
Charge cards also affect some of the other factors used to determine your score, such as payment history (35% of your score) and the length of your credit history (15%). So, don’t think of an account with no credit limit as a license to spend irresponsibly. Your charge-card spending and payment activity does impact your credit score, but with good financial habits, you can use that to your benefit.
Which Type of Card Should You Get?
Credit cards can be easier to apply for and have less stringent credit requirements than charge cards. If you’re just starting to build your business and/or credit history, you might want to apply for a business credit card instead of a charge card.
If you like having preset spending limits and don’t anticipate nearing them each month, you might favor a credit card over a charge card simply to keep more careful track of your spending, and to improve your credit score by keeping a low debt-to-credit ratio.
Finally, you might choose a credit card over a charge card if you’re unsure you’ll be able to pay your card off in full each month. Though this is generally an expensive option due to high interest rates and late fees (the latter of which you can avoid by submitting a minimum payment), credit cards allow you the flexibility to roll balances over from month to month rather than having to pay in full each billing cycle. Furthermore, many business credit cards offer promotional interest rates as low as 0% for a set period of time, so you can carry a balance without incurring huge interest payments (at least for a while).
Charge cards are extremely powerful tools in business owners’ pockets. Although they require you to pay the balance in full each month, they provide the flexibility to make purchases as needed without having to worry about maxing out a preset spending limit. The lack of preset limits also means that activity on charge cards generally has less impact on your credit score (since the debt-to-credit ratio is not taken into account). If you’re financially responsible and are looking for a card that will allow you to make large purchases at a moment’s notice, charge cards are probably the way to go.
One final consideration: The main issuer of charge cards these days is American Express, which allows you to have up to four credit cards per person, but has no hard limit on the number of charge cards you can carry. If you already have the maximum number of Amex credit cards, a charge card could be a good way to keep earning those valuable points.
Now that we’ve covered the basics, here are some of the best business credit and charge card offers currently on the market.
Business Credit Cards
Ink Plus Business Card — Earn 60,000 Ultimate Rewards points after you spend $5,000 on purchases in the first three months after account opening. Earn 5 points per dollar on the first $50,000 spent annually in combined purchases at office supply stores and on cellular, landline, internet and cable TV services. Earn 2 points per dollar on the first $50,000 spent annually on gas stations and hotel stays (booked directly with the hotel) and earn 1 point per dollar on other purchases. This card comes with a $95 annual fee and various benefits like no foreign transaction fees, free employee cards, spend flexibility, transfer partners and portal bonuses.
Ink Cash Business Card — Earn $200 bonus cash back when you spend $3,000 in the first three months. Earn 5% cash back on the first $25,000 spent annually at office supply stores, and on cellular phone, landline, internet and cable TV services; 2% cash back on the first $25,000 spent annually at gas stations and restaurants; and 1% cash back on everything else. This card comes with no annual fee.
CitiBusiness / AAdvantage Platinum Select World Mastercard — Earn 50,000 American Airlines AAdvantage miles after spending $3,000 in purchases in the first three months. Earn 2 miles per dollar spent on eligible American Airlines purchases and on purchases at certain office supply, telecommunications and car rental merchants. Get the first checked bag free for you and up to four traveling companions, enjoy Group 1 Boarding and receive a 25% discount on in-flight food and beverage purchases. This card has a $95 annual fee that’s waived for the first year.
United MileagePlus Explorer Business Card — Earn 50,000 United MileagePlus miles when you spend $2,000 in three months. Earn 10,000 bonus miles when you spend $25,000 in a calendar year. Earn 2 miles per dollar at restaurants, gas stations and office supply stores, and on tickets purchased from United. Get your first checked bag free. No foreign transaction fees. This card has a $95 annual fee waived that’s for the first year.
Gold Delta SkyMiles Business Credit Card from American Express — Earn 30,000 bonus SkyMiles after you make $1,000 in purchases on your new Card within the first three months. Additionally, earn a $50 statement credit after you make a Delta purchase on your new card within the first three months. Earn 2 miles per dollar spent on purchases made directly with Delta, and 1 mile per dollar spent on all other eligible purchases. The $95 annual fee is waived for the first year, and there are no foreign transaction fees. Receive flight benefits like your first checked bag free and priority boarding.
Starwood Preferred Guest Business Credit Card from American Express — Earn 30,000 bonus Starpoints after you use your Card to make $5,000 in purchases within the first three months (offer expires September 14, 2015). Earn up to 5 Starpoints per dollar on purchases at participating SPG hotels. Earn 2 stays/5 nights of credit toward elite status each year, and automatic Gold status when you spend $30,000 on the card in a calendar year. Receive new benefits such as no foreign transaction fees, complimentary unlimited Boingo Wi-Fi, and Sheraton Club access. The $95 annual fee is waived for the first year.
SimplyCash Business Card from American Express — Earn a one-time $250 statement credit after you spend $5,000 or more in qualifying purchases on the card within the first six months (offer expires April 27, 2016). Earn 5% cash back at US office supply stores and on wireless telephone services purchased directly from US service providers. Earn 3% cash back on another category of your choice, and 1% cash back on all other purchases. 5% and 3% cash-back earning applies to purchases up to $25,000 per year. This card has no annual fee.
U.S. Bank FlexPerks Business Edge Travel Rewards Card — Earn 20,000 bonus FlexPoints after you spend $3,500 in the first four months. Earn 3 points per dollar spent on qualifying charitable donations and 2 points per dollar on most cellphone expenses, and on gas, groceries or airline purchases (whichever you spend the most on each billing cycle). Additionally, you will earn 1 point per dollar spent in other net purchases. Get up to a $25 airline allowance with each award travel ticket (good toward baggage fees, in-flight expenses and more). The $55 annual fee is waived the first year. For an explanation of the FlexPoints program, read this post.
Business Charge Cards
There are far fewer charge cards on the market than credit cards, and the main issuers are American Express and Diners Club. Here are three of the most popular (and most lucrative) business charge cards currently available from American Express.
The Business Platinum Card from American Express — Earn 40,000 Membership Rewards points after you spend $5,000 in purchases on the card within your first three months of card membership. Earn 1 point per dollar on eligible purchases, and 2 points per dollar when you book on the American Express Travel website. This premium card gives you a wide range of lucrative benefits, including complimentary access to over 700 airport lounges worldwide and unlimited Boingo WiFi at more than 1,000,000 Boingo hotspots worldwide. While this card comes with a $450 annual fee, you can receive up to a $200 airline fee credit per calendar year. For more info, check out TPG’s list of 9 reasons to love the Business Platinum card.
Business Gold Rewards Card from American Express — Earn 25,000 Membership Rewards points after spending $5,000 in purchases on the card within the first three months of card membership. Earn 3 points per dollar in a category of your choice (from a list of five categories), earn 2 points per dollar in the four remaining categories and 1 point per dollar on other purchases. This card comes with a $175 annual fee that is waived for the first year. For more on how this card compares to the Business Platinum, see this post.
The Plum Card from American Express OPEN — Earn up to 3.5% cash back on your first $30,000 in purchases on the card within the first three months (this offer expires August 24, 2015). Get a 1.5% discount for paying early or up to 60 days to pay without interest, or both each month. Plus, get an additional $200 statement credit for every $10,000 you spend on the card; up to $600 back, which can be an extra 2%. This card comes with no foreign transaction fees and a $250 annual fee that is waived for the first year. There is no annual fee for each additional Employee Plum Card.
For more information on business credit and charge cards, check out these posts:
- Small Business Owners: Make Credit Card Spending Work for You
- Small Business Owners: Getting Started with Points and Miles
- Using a Cash Back Business Credit Card
- Personal Versus Business Credit Cards
- What is the Best Points-Earning Business Card?
- Top 10 Reasons to Get a Business Credit Card
With great travel benefits, 2x points on travel & dining and a 50,000 point sign up bonus, the Chase Sapphire Preferred is a great card for those looking to get into the points and miles game. Here are the top 5 reasons it should be in your wallet, or read our definitive review for more details.
- Earn 50,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $625 toward travel when you redeem through Chase Ultimate Rewards®
- 2X points on travel and dining at restaurants worldwide & 1 point per dollar spent on all other purchases.
- Earn 5,000 bonus points after you add the first authorized user and make a purchase in the first 3 months from account opening
- No foreign transaction fees
- 1:1 point transfer to leading airline and hotel loyalty programs
- Get 25% more value when you redeem for airfare, hotels, car rentals and cruises through Chase Ultimate Rewards. For example, 50,000 points are worth $625 toward travel
- No blackout dates or travel restrictions - as long as there's a seat on the flight, you can book it through Chase Ultimate Rewards