NEW YORK --- It's not a credit card or a debit card. If you've never had a charge card, you may wonder how it compares to the plastic you already carry.
Charge cards -- primarily issued by American Express -- require cardholders to pay off balances in full each month. There are no interest rates or hard-and-fast spending limits.
The premise may intrigue anyone disgruntled by the imposition of harsher terms on their credit cards in the past year. American Express is aiming to capitalize on that discontent with its "Take Charge" ad campaign, which touts the benefits of charge cards at a time when people are looking to control debt.
Yet charge cards aren't for everyone, and come with their own costs and limitations. Here are some questions and answers about how they work.
DO I QUALIFY?
American Express doesn't disclose its approval standards, but it's safe to say you need a solid credit background to qualify. So, if you're in the midst of repairing your credit, you may want to hold off before applying.
In the third quarter of last year, the bulk of card mailings (69 percent) sent by AmEx were to households with excellent credit scores (760 and above). That said, mailings also went to households with fair to good scores (620-759), according to research firm Synovate.
The card application asks about your income and savings, so those factors could help if your credit score is just so-so.
WHAT ARE THE FEES?
American Express charges annual fees ranging from $25 to $450. That includes membership to the company's rewards program and additional perks, depending on the card you pick. The Gold Card, for example, offers access to premium seating at select concerts.
The $25 annual fee applies only to the company's new Zync card, which is targeted to people in their 20s and 30s. It's $20 extra for additional perks tailored to particular lifestyles. The "Go" package, for instance, includes special travel offers and double points on airfare.
Whether an annual fee is worthwhile depends largely on your spending habits. You'll want to estimate how much you're likely to charge, and if you'd earn enough points to recoup the fee.
If you have a rewards credit card with no fee that you're happy with, a charge card might not be worthwhile. You can compare the rewards you earn now with the points AmEx gives at www.americanexpress.com.
You also want to be sure you can pay your entire balance on time. Otherwise, American Express charges a late fee of $35 or 2.99 percent of the balance (whichever is larger).
Depending on the type of card you have, you have 40 to 50 days from the close of your last billing cycle to pay. You're normally given around 25 days to 30 days to pay credit card bills.
WILL I HAVE A CREDIT LIMIT?
American Express monitors your credit report and buying habits to continually adjust your spending limit.
The company won't tell you your cap, but you can call customer service for guidance if you're worried about a large purchase not going through. The upside is that you can't incur over-the-limit fees.
If a lack of clear-cut boundaries concerns you, alerts can be set up to notify you when your balance hits a certain level.
American Express also recently rolled out an option that lets you set spending limits for additional cards on your account. So if you give your teenager a card, you could set an allowance and cap expenses at $300 a month.
WILL IT AFFECT MY CREDIT SCORE?
To establish a credit history, there is no difference between charge cards and credit cards. Both are considered revolving credit.
The tricky part is how charge cards affect a component of your score called credit utilization. This measures your outstanding balance against your available credit and counts for about 30 percent of your score. The lower your utilization, the better.
However some organizations still use older credit scoring models that could distort your utilization of a charge card.
Because charge cards have no published spending limits, those older scoring models sometimes take the highest balance incurred on a charge card as the limit. If you charge around the same amount each month, it could appear that you're always maxing out your credit. FICO, which develops the most widely used scores, said its newer scoring models don't factor in utilization for charge cards.
ANY OTHER SERVICES?
A key benefit American Express offers is its customer service, which is available around the clock. You also get perks typically not offered with credit cards. For example, the company announced recently that rewards points can now be used to pay state and federal income taxes.
All cards also comes with a free credit report and score once a year and $50 of coverage for roadside assistance when you're driving more than 50 miles away from your home.