18. Charge Cards Vs Credit Cards: What You Need to Know

Welcome to Point Me to First Class, the only show for employed professionals, entrepreneurs, and business owners who are looking to optimize their higher-than-average expenses to travel the world. I'm your host, Devon Gimbel, and I believe that your expenses are your greatest untapped asset if you know how to leverage them. Ready to dive into the world of credit card points and miles so you can travel more, travel better, and travel often? Let's get started.

Welcome everybody. Today, I want to dive into a topic that is a little bit of a nuance in the world of rewards cards. that is the difference between a charge card and a credit card. Now, it's entirely possible that you already have one or even a few points earning charge cards without realizing that they're not exactly the same thing as a traditional credit card.

So today, I want to take a closer look at what makes a charge card different from a credit card and discuss some of the unique benefits of charge cards and how they fit into your overall points earning card portfolio. I'm also going to discuss some of the points earning charge cards offered by major credit card issuers and highlight the features of some of my favorite rewards charge cards as well as offer some tips for choosing the right rewards charge card or cards or yourself.

So first, I think it's important to clarify the distinction between a charge card and a conventional credit card. the main difference between the two is that while a conventional credit card offers revolving credit, such that you can carry a balance from month to month, the balance on a charge card has to be paid in full every month.

Now if you're in the world of points travel, that difference is probably insignificant to you since one of the cardinal rules of using rewards cards is that you pay the balance in full monthly on any rewards card you have. Since the value of any points earned using rewards cards is going to be negated by the cost of the interest you'll be charged if you do not pay your statement off in full every month.

But the second difference between charge cards and credit cards is the one that really matters. that is, unlike traditional credit cards that have an assigned credit limit, charge cards do not have a preset spending limit. With a traditional credit card, the credit card issuer will designate your credit limit for a given rewards card, say $3,000 or $10,000 or $20,000.

once you hit that limit in spending during a billing cycle, you can't put more expenses on that card until after you've paid your statement balance. Of course, you can always pay off the statement balance so that you can gain access to your credit line again. But it's actually not great practice to frequently max out your credit card limit, pay off the balance, and then put additional charges on that credit card in a single billing cycle. This practice actually has a name. It's known as credit cycling, and banks do not like to see an ongoing pattern of credit cycling because they see it as a red flag.

Now, it doesn't matter if you actually have more than enough liquid funds to pay off your credit card bill in full several times over. The behavior of credit cycling alone can appear suspicious to a credit card issuer, and it can be grounds for them to cancel or shut down your credit card account or otherwise limit it.

So while utilizing your entire credit limit on a given credit card, paying off the statement, and then charging more to that credit card within a single billing cycle likely won't get you into any trouble. You don't want to make it a habit to credit cycle with a traditional credit card.

The other drawback of having a preset credit limit on a traditional credit card is that if you have a single expense that exceeds the credit limit on your card and the vendor does not allow you to split up your payments, you may not be able to charge it at all, and you'd lose out on being able to earn points for that expense. the higher that expense is, the more potential points you'd be missing out on if the vendor doesn't allow you to submit multiple payments for your single bill or expense.

this is where having a charge card can be incredibly beneficial. Because charge cards do not have a preset spending limit, that means that you don't have a defined credit limit on your charge card. This makes rewards charge cards particularly useful for single high expenses where the cost of the expense exceeds the credit limit available to you on one of your conventional credit cards.

Single high expenses on the personal side might look like a tuition payment, home renovation costs, out-of-pocket medical expenses, tax payments, or expenses associated with an event like a bar mitzvah or a wedding. Single high expenses on the business side may include things like purchasing vaccines or other supplies for a medical practice owner, purchasing a new piece of equipment, investing in high level mentoring or coaching as a business owner, costs associated with renting and event space for a conference or a retreat, or social media ad expenses for businesses with large marketing budgets.

For single, personal, or business expenses that might be multiple five figures or even six figures, many conventional credit cards will not have a credit limit that allows you to put that entire charge on the card and still have room left for other expenses. This is where having a charge card that has no preset spending limit can be incredibly useful.

before you start wondering, no you can't just go out and put like $2 million of charges on a charge card and expect your card issuer to approve that. When you have a charge card, the card issuer may still limit how much you can spend on the card but your purchasing power can be influenced by and can change over time based on your payment history, credit, income, debts, and other risk factors as determined by the issuer.

But if you have a strong relationship with your credit card issuer, including a history of on time payments on your cards with them, you will probably find that the amount that you can charge on a charge card far exceeds what you can charge on a traditional credit card.

there's another beneficial side effect to charge cards not having a preset spending limit. that is that since charge cards have no defined credit limit, they do not factor into your credit utilization ratio. Now if you're not familiar with what credit utilization ratio is or how to calculate yours, be sure to go back and listen to podcast episode number three where I break down exactly what factors influence your credit score and describe in detail what credit utilization ratio is and why it is so important to know about.

Since your credit utilization ratio is the second most important factor in determining your credit score, it's important to be mindful of how much of your overall credit you're utilizing at any given time. Remember that having a high credit utilization ratio, generally considered to be around 30% or higher, is going to have a negative impact on your credit score.

So if you have an overall credit line of $100,000 available to you, and you put a $60,000 tax payment on a conventional credit card, you're utilizing 60% of your overall credit which is going to negatively affect your credit score. again, it doesn't matter if you have more than enough liquid funds sitting in a checking or savings account to pay those statements off entirely. If at the time your credit balances get reported to the credit bureaus you have a high credit utilization ratio, your credit score will suffer.

But if instead of putting that $60,000 tax payment on a conventional credit card you instead put that expense on a charge card, that balance is not going to affect your credit utilization ratio or impact your overall credit score. So not only do rewards charge cards have the advantage of oftentimes having a larger capacity to hold high charges. But putting those high charges on a charge card has the additional benefit of not potentially affecting your credit score in a negative way since they do not contribute to your credit utilization ratio.

The final benefit of including points earning charge cards into your rewards card portfolio is that some credit card issuers have limits on how many credit cards within their particular points ecosystem you can hold at a given time. Charge cards may not be included in that overall limit.

For example, American Express limits you to hold five of their credit cards at a given time, but charge cards do not count toward that limit. You may think that five credit cards sounds like a lot, and that you'd never be close to exceeding that limit.

But American Express alone offers more than 20 different points earning credit cards between its portfolio of personal and business credit cards, and cobranded airline and hotel credit cards including Delta, Marriott, and Hilton cards. Being able to hold additional points earning charge cards that do not count toward the five card limit with American Express can be incredibly beneficial.

All right, now that you know the difference between charge cards and traditional credit cards and some of the advantages that charge cards offer, let's look at what specific points earning charge cards are out there and how these can fit into your overall rewards card portfolio. Currently, rewards charge cards are offered by only two of the major transferable points currency card issuers. That is Capital One and American Express.

Chase does offer one charge card that's a business card called the Chase Inc Business Premier card, but this card functions as a cash-back card only and does not earn rewards in the form of transferable Chase Ultimate rewards points. So I'm not going to go into any more detail about that specific card here.

Capital One offers one charge card on the business side called the Spark Cash Plus card. while it's marketed as a cash-back card, this card, unlike that Chase business cash-back charge card I just mentioned, can actually earn rewards in the form of transferable Capital One points as long as you also hold a Capital One rewards points earning card.

So if you have a Capital One Venture X card, which is a personal Capital One points earning, card or if you have a Capital One Spark miles for business card, which is a business Capital One points earning card, then the rewards that you can earn with the Capital One Spark Cash Plus card can actually be converted into very valuable Capital One points.

That means that instead of earning 2% cash-back on all spend put on this card, it can actually earn two times Capital One points on all spend, which is a really phenomenal points earning rate. This card would be fantastic for someone who already holds a Capital One points earning card and is looking for a simple approach to earning points on their business spend.

Particularly for business owners who have significant expenses that don't fall into the bonus categories for other business credit cards and who anticipate having large expenses that may not be accommodated by the credit limit on a traditional business rewards credit card.

Now, the credit card issuer that offers the most rewards charge cards is American Express, which has two personal rewards charge cards and two business rewards charge cards that you can get. On the personal side, American Express offers the Personal Gold card and the Personal Platinum card, both of which earn their transferable points currency known as American Express Membership Rewards points.

Amex Membership Rewards points are both very flexible and very valuable when it comes to potential uses of them with some of my favorite ways to redeem points being international business class flights. With 17 different airline transfer partners, there are tons of options for using Amex points for incredible flights.

But before you can use Amex points, you have to earn them. among the personal rewards charge cards that Amex offers, the Amex Gold Card is one of my favorites because of its fantastic bonus categories. The personal Amex Gold Card earns four times points on grocery spend as well as restaurant and dining spend, which together represent some of the highest expense categories for lots of people.

With an annual fee of $250, this is not one of the lowest fee rewards cards that you can find, but considering its points earning power, it's $120 annual Uber cash credit, and $120 annual dining credit, this is one of my most often used rewards cards that earns me tons of Amex points every year.

The Amex Gold card also has a fantastic signup bonus, which ranges from around 60,000 to 90,000 American Express points, and oftentimes has great additional points earning opportunities on promotions that are offered by American Express periodically. For people interested in getting into the Amex points currency ecosystem. The personal Amex Gold Card is one card that I consider foundational for Amex points earning, and that I recommend all the time.

The other personal points earning charge card that Amex offers, the Amex Platinum card, is one that I actually consider to be a relatively poor points earning card but that can be worth getting and even hanging on to long term depending on what you're looking for in a rewards card.

The reason that I consider the personal Amex Platinum card to be less valuable as a points earning card is because it only really has two bonus categories. It earns five times points on flights booked directly with airlines or through American Express's travel portal, and it earns five times points on prepaid hotels booked through the Amex travel portal. compared to other rewards cards, those bonus categories are frankly disappointing to me since I actually don't spend that much money on travel because I defray so much of the cost of travel by using my points.

But the personal Amex Platinum card isn't a complete dud despite its fairly astronomical annual fee of $695. that's because the huge signup bonus this card can offer and an enormous menu of annual credits and travel perks and benefits. We've seen initial welcome bonuses on the Amex personal platinum card up to 150,000 Amex points, which is enough for a round trip business class flight to Asia or Europe worth several $1,000 on its own.

then there are the benefits of the Amex personal platinum card. This card offers over $1,500 in annual credits if you take advantage of all of them, including a $200 annual airline credit, $200 hotel credit, and $240 digital entertainment credit.

The card also comes with access to the American Express Global Lounge collection, a priority pass membership to enjoy airport lounges around the world, and gold status in both Marriott and Hilton Hotel loyalty programs. For the frequent traveler or someone who can really take advantage of all the annual credits the personal Amex Platinum card offers, this can be a card that offers a lot of value, even if it's one that you don't put a lot of spend on.

On the business side, American Express offers two points earning charge cards. these are absolute game changers in my opinion, especially if you have high business expenses or anticipate using one of these cards solely for personal expenses.

The two rewards charge cards offered by American Express on the business side are the Business Gold card and the Business Platinum card. even though these have essentially the identical names as their counterparts on the personal side, these are very different cards.

As an aside, I have no idea why American Express does this thing where they give the same name to entirely different credit card products because it causes a lot of confusion. But just keep in mind that the Amex Business Gold Card is completely different from the Amex Personal Gold card. The Amex Business Platinum card is completely different from the Amex Personal Platinum Card.

They all earn American Express membership rewards points that can be combined together, but they're four distinct rewards card products. Just like their counterparts on the personal side, the Amex Business Gold Card and Amex Business Platinum card or charge cards that offer some amazing benefits starting with incredible welcome bonuses.

The signup bonus offers on the Amex Business Gold and Platinum cards fluctuate, but I've seen them go as high as 180,000 points for the Business Gold card and as high as 250,000 points for the Business Platinum card. bonuses this high are pretty rare among rewards cards and are not to be passed up if you can get access to one of these offers.

When it comes to points earning, both the Amex Business Gold Card and Business Platinum card offers some strong bonus categories. The Amex Business Gold card offers four times points on several categories, including restaurant and dining spend, purchases at gas stations, shipping, airfare purchase directly from airlines, and advertising spend including social media ad spend.

Each billing cycle you'll earn four times Amex points on the two categories with the highest amount of spend up to $150,000 spent annually. So for those of you who have a Business that incurs expenses in one or more of these categories, the Amex Business Gold card can be a phenomenal points earning card year after year, even beyond the initial welcome bonus.

When it comes to points earning, the Amex Business Platinum Card holds one major advantage over the Amex Personal Platinum card. that is that it offers increased points earning on spend at construction material and hardware suppliers like Home Depot and Lowes and also offers increased points earning on any individual charge that is $5,000 or more.

for both of these types of spend, the Amex Business Platinum card offers 1.5 times Amex points for every dollar spent up to $2 million spent annually. I know on the surface earning 1.5 times points may not sound very significant, but remember that because the Amex Business Platinum card is a charge card there is no preset spending limit. Which makes this card incredible for putting large expenses that you otherwise might not be able to put on a traditional credit card depending on what your credit limit is.

If you have a business that incurs significant spend at stores like Home Depot or Lowes, say a real estate investment business or a rental property business. Or if you're planning a home renovation project where you can purchase the materials directly for your contractor or designer, the ability to earn one and a half times Amex points on potentially large spend is great.

Additionally, if you have a business with high expenses that default outside their traditional bonus categories on other business rewards cards, the ability to earn 1.5 times points on any charge over $5,000 makes the Amex Business Platinum card very valuable. The Amex Business Platinum card is my family's go to rewards card for paying our quarterly estimated taxes for three reasons.

Number one, it allows us to earn one and a half times Amex points for all of our tax payments, which are a lot considering that we're both self-employed. Number two, because the Amex Business Platinum card is a charge card, it has no preset spending limit, which has allowed us to put single expenses that can be high five figures all on the card in one charge when none of our traditional business credit cards have a credit limit that would otherwise accommodate those expenses.

number three, because the Amex Business Platinum card is a charge card, our credit utilization ratio is not affected negatively when we do put a significant amount of spend on the card. Which means that our credit scores do not take a hit in the months when we do have a large expense, like an estimated quarterly tax payment that we put on the card.

In addition to its bonus points earning categories, the Amex Business Platinum card also comes with over $1,000 in annual credits and travel perks and benefits. One other benefit of all of the American Express charge cards that I've mentioned today is that because they earn American Express membership rewards points, all four of those charge cards, the Amex Personal Gold card, the Amex Personal Platinum card, the Amex Business Gold card, and the Amex Business Platinum Card. All of these cards are ones that you can link to Rakuten, which is an online shopping portal.

Now linking an American Express Membership Rewards points earning card to Rakuten means that if you choose to, you can actually earn all of your rewards for your online shopping through Rakuten not as cash-back rewards but as American Express points. So having one of these cards gives you the additional points earning potential of leveraging all of your online shopping to earn even more American Express points.

So there you have it. While both traditional credit cards and charge cards can earn rewards points, there are some important differences between the two that you should keep in mind when creating your points earning card portfolio. Keep in mind that most rewards charge cards do require a good to excellent credit score to qualify. So you'll want to have a credit score of at least 670 or higher to consider applying for one of the charge cards mentioned today.

if you're wondering how to decide which rewards charge card is a good fit for you, here are my suggestions. First, compare the airline and hotel transfer partners of American Express and Capital One as they are somewhat overlapping but not identical. Choose the points currency based on the unique transfer partners that are important to you.

If you want to make sure that you have access to Delta, Hawaiian, Virgin Atlantic, or ANA Airlines for example, one of the American Express rewards charge cards will be better for you. If instead you want to be able to transfer points to Turkish Airlines or TAP Portugal, check out the Capital One rewards charge card.

Second, compare the points earning categories of each of the rewards charge cards, and choose the rewards charge card or cards that will allow you to earn the most points ongoing for your areas of highest spend. Third, review the non-points earning perks and benefits to see if one card matches your needs better.

While the Capital One Spark cash plus card offers a few additional perks and benefits, the Amex personal Platinum and Amex Business Platinum cards come with tons of annual credits, trip protection, and additional travel benefits. No matter what, don't forget the rewards charge cards can be a great addition to your points earning card portfolio.

Thank you for joining me for this week's episode of Point Me to First Class. If you want more tips on turning your expenses into travel, visit pointmetofirstclass.com to learn more. See you next week.