Do charge cards build credit?

[Felipe]

My dad wants to add me as an authorized user on his American Express charge card. I know that credit piggybacking works for family members with credit cards, but does it also work with charge cards? I know there are differences between the two (e.g. no limit on charge cards).

[Stacy Wall]

Charge cards ARE credit cards

Charge cards build credit exactly like regular credit cards. In fact, charge cards ARE a type of credit card.

Unlike regular credit cards, charge cards are not revolving accounts. You can’t carry a balance, and the statement must be paid in full every month. Charge cards have no limit and no interest rate (because you can’t carry a balance).

When it comes building credit, there are some similarities and differences between charge cards and credit cards:

1. As far as payment history goes – there’s no difference between the two. Both will build good credit assuming timely payments.
2. Since charge cards have no limit, both the new Fico (NextGen Fico) and the new Vantage do not count them in the credit-to-limit ratio (utilization). This gives charge cards advantage over credit cards, because utilization counts for 30% of your Fico score, and 23% of your vantage score.

In about 2 years of credit piggybacking you should have goo enough credit. Have your father remove you as authorized user. Down the road, those accounts can be a problem. They will count in your debt to income ratio even though your father pays them, and if your father ever misses a payment, it will also appear of your report and hurt your credit.

P.S. Some charge cards do come with the option to revolve a portion of the debt (e.g. American Express). It’s called Flexible Payment Service. I’m not sure how Fico or Vantage considers the revolving balance in the utilization. Most likely that they do.

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[Author]

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