How Do Charge Cards Affect Your Credit Score?

A charge card is a type of credit card where you must pay the statement balance in full each month. Unlike a traditional credit card, you can't just pay a minimum balance.

Charge cards technically don't have a set credit limit, but there is an internal number that American Express has in mind. Since the credit limit is "unlimited" and you need to pay off the balance each month, how do charge cards affect your credit score?

The Old Method to Calculate Utilization

In the past, the credit issuers would calculate utilization based on the current balance over the largest recorded balance. 

Calculation:

= [current balance] / [largest recorded balance]
= charge card utilization

Example:

  • current balance = $1,000
  • largest recorded balance = $10,000
  • Utilization = $1,000 / $10,000 = 10%

Problems with the Old Method

  1. Encourages large spend (for at least one month to minimize utilization long-term)
  2. Punishes you for at least one month (i.e., t=1)
  3. Customers with "smooth" usage habits (i.e., $1,000-$2,000 / month w/o "jumps") get punished by the model

Charge Cards & Utilization (as of 2018)

As of 2018, credit issuers have shifted to a new method of calculating utilization. 

a) Balance can be reported

b) Balance does NOT factor into utilization

This means that if you have a large balance on your charge card, then it won't affect your utilization. 

Below are some of the more popular charge card options on the market right now.

American Express Charge Cards (Personal)

  • American Express Green
  • American Express Premier Rewards Gold (PRG)
  • American Express Platinum
  • American Express Platinum co-branded (Schwab, Ameriprise, Goldman Sachs, Morgan Stanley)

American Express Charge Cards (Business)

  • American Express Business Green
  • American Express Business Plum
  • American Express Business Gold Rewards (BGR)
  • American Express Business Platinum

Editorial Note: Opinions expressed here are the author's alone, not those of any bank, credit card issuer, airlines or hotel chain, vendors or companies, and have not been reviewed, approved, or otherwise endorsed by any of these entities. 

UGC disclosure: These responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.