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Most business owners need regular access to additional capital that isn’t in their business bank accounts. Credit cards and small business loans are two of the many financial products that provide companies with the funds that they need. However, those financial products can get expensive between fees and interest rates. 

Charge cards are an alternative that give business owners more flexibility than traditional business credit cards. This guide will explore how charge cards work and what to keep in mind before deciding if this financial product is right for you.

How do charge cards work?

Charge cards allow you to buy various goods and services like a credit card. However, charge cards do not have any preset limits. You also will not accrue any interest on your charge card. The only requirement is that you pay back your balance in full at the end of each month. Penalty fees and late fees may apply if you do not pay off your charge card’s balance at the end of the month.

How do charge cards affect your credit score?

A charge card will not affect your personal FICO score, but it will impact your company’s business credit score. Charge card issuers will send your payment history to the major business credit bureaus. However, charge cards will not impact your credit utilization ratio since there is no preset limit.

Payment history is the most important component of your business credit score. A charge card impacts this category, but it also plays a role in the age of your credit, inquiries, and credit mix. Each of these factors also contributes to your business credit score. 

If you take out a charge card and pay the balance in full each month, your business credit score will go up. A higher business credit score will help you qualify for better rates and terms on future business loans. However, falling behind on charge card payments and making late payments will negatively impact your credit score.

How do charge cards differ from credit cards?

Charge cards do not have any preset credit limit, while business credit cards restrict how much debt you can accumulate. Charge card issuers adjust how much you can spend based on your payment history. Businesses that pay off their balances in full each month can end up with higher charge card balances. 

You can request a higher credit limit for your business credit card, but you can typically only make this request every 6-12 months. A business credit card issuer is not required to fulfill your request. Meanwhile, charge cards automatically raise your limit based on your history and readily give you access to more capital. Business owners with business credit cards may have to take out personal loans to borrow the money they need. However, a charge card is enough for many business owners due to the greater flexibility.

Credit cards are more restrictive with how much you can borrow, but they impact your credit utilization ratio. Companies with business credit cards can improve their credit scores by having low balances. This same perk does not extend to charge cards since the lack of a preset limit means it won’t impact your credit utilization ratio. 

Charge cards and credit cards both have welcome bonuses, rewards programs, and other perks for their cardholders. The benefits you’ll receive from an issuer will vary depending on which card you use.

The most notable difference is that you can avoid interest payments with a charge card. Meanwhile, credit cards often exhibit high APRs for any debt that sticks around at the end of each month. With a charge card, you must repay your balance by the end of each month. Business credit cards give you more time to pay off your balance, but delaying your payments also results in more interest.

Pros and cons of charge cards

Charge cards offer several advantages, but every financial product has its drawbacks. These are the pros and cons to consider before deciding if a charge card is right for you.

Pros

  • No interest payments
  • These cards have welcome offers, rewards programs, and other perks
  • No preset spending limits make it easier to access cash flow
  • Business owners can give charge cards to their employees and manage them
  • Charge cards can improve your business credit score if you make on-time payments

Cons

  • You must pay your balance in full by the end of the month
  • Charge cards do not impact your credit utilization ratio
  • Charge cards may have different eligibility requirements, like cash on hand
  • Penalty fees can apply for late payments

Which issuers offer charge cards?

Small business owners and corporations can choose from many charge card issuers. Some of the companies that offer business credit cards also offer charge cards. These are some of the issuers that offer charge cards:

  • Ramp
  • American Express
  • Capital One
  • Chase Bank
  • Tomo
  • Sunoco
  • Stripe

Business owners should compare each card’s welcome bonus, rewards, fees, and features when deciding which card is right for them.

Grow your business with the Ramp corporate card

Charge cards let businesses access more capital than they could with business credit cards. However, some charge cards don’t offer much beyond the basics. You should get a charge card that rewards you for every purchase and has a bunch of other great perks. That’s where the Ramp corporate card comes in handy.

Ramp allows business owners to issue an unlimited number of cards and save an average of 5% through cost-cutting features. These cards also let you tap into higher limits that are up to 30 times higher than traditional options. Ramp also streamlines your accounting by generating reports that can save you a lot of time during tax season. 

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CPFC, Contributor Finance Writer
Marc Guberti is a certified personal finance counselor and a freelance writer. His work has been featured in US News & World Report, Newsweek, Fox Business, and other publications.
Ramp is dedicated to helping businesses of all sizes make informed decisions. We adhere to strict editorial guidelines to ensure that our content meets and maintains our high standards.

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