Credit cards and charge cards both let you make a purchase now and pay for it later. There are still important differences between these two types of cards. Let’s look at what those differences are and which card might be best for you.
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At a Glance: Charge Cards vs. Credit Cards
It’s important to note that many places use the two terms interchangeably, but there are key differences and a few similarities:
| Charge cards | Credit cards |
| Must be paid in full each billing cycle | Can be paid off over time |
| Have no spending limit | Have a predetermined credit limit |
| Have no interest charges | Charge interest rates between 12% to 26% APR if you don’t pay the card in full each month |
| Do not allow balance transfers | Allow balance transfers |
| Usually have an annual fee | May or may not have an annual fee |
| Include buyer protections | Include buyer protections |
| Some offer rewards or cashback bonuses | Some offer rewards or cashback bonuses |
| Accepted by most major retailers | Accepted by most major retailers |
| Reports to credit bureaus | Reports to credit bureaus |
| No cash advances | Offer cash advances |
Six Ways Charge Cards Differ from Credit Cards
Charge cards and traditional credit cards have several key differences.
1. Charge Cards Must be Paid in Full Each Billing Cycle
The biggest difference is that credit cards allow you to carry a balance from month to month. You will pay interest on that balance, but you will have more time to pay it off. As long as you make the minimum monthly payment, your account remains in good standing.
Charge cards don’t allow you to carry a balance. They have to be paid off in full at the end of each billing cycle. Some charge cards offer a 60-day cycle rather than monthly. That gives you more time to pay but also gives you more time to build up a balance. However, if you fail to pay your balance by the due date, you will do some damage to your credit score and will be at risk of having your account closed altogether.
Pro tip: There is one exception that prevents having to pay your balance in full. Some charge cards are now offering “pay over time” plans that allow you to carry a balance — and pay interest. This can buy you some time if you need to make a major unexpected purchase.
READ MORE: Advantages of credit cards
2. Charge Cards Have No Predetermined Credit Limit
A credit card comes with a set credit limit. Your card issuer will set a limit based on your income and credit profile. You can spend as much as you like as long as you don’t exceed your available credit limit.
A charge card does not have a spending limit, but you have to pay it off at the end of the billing cycle. If you fail to make the payment on time, there will be a late fee, and your account may be suspended or closed. No spending limit doesn’t necessarily mean you have unlimited spending, though. What it means is that you won’t receive a maximum spending limit upon card approval. Instead, your credit limit will be adjusted periodically based on your cardholder history and spending patterns. It can be in constant flux.
Pro tip: If you’re using a charge card and need to make a big purchase, you should consider calling the company that issued the card to tell them about the upcoming purchase to ensure that you have enough remaining credit and the charge won’t be declined.
3. Charge Cards Have No Interest Charges
A credit card charges interest on any balance carried beyond the end of a statement period. If you pay each statement off in full before the due date, you will not pay interest.
A charge card does not allow you to carry a balance beyond the end of the statement period. There are no interest charges, and there’s no interest rate.
Pro tip: You will pay a significant late fee if you don’t pay your charge card balance in full by the due date unless you set up a “pay over time” option, but those usually include interest charges.
READ MORE: Is your credit card APR too high?
4. Balance Transfers
Many credit cards allow you to transfer balances from other cards or other credit accounts. Some even offer a zero-interest promotional period on transferred balances. This can make credit cards an ideal tool for credit card debt consolidation.
You cannot transfer balances onto charge cards, since you are not allowed to carry a balance.
READ MORE: Best balance transfer credit cards
5. Cash Advances
Most credit cards allow you to draw a cash advance. This is rarely a good option, as cash advances have high interest rates and incur interest immediately, but it’s still better than a payday loan.
Charge cards do not offer cash advances.
READ MORE: Credit cards for teens
6. Annual Fees
Card issuers want to make money. Credit card issuers earn most of their money by charging interest. Charge card issuers don’t get that income, so they will usually charge an annual fee, which will vary depending on the card. Always check the fee before applying for a charge card.
Many credit cards also charge annual fees, but there are plenty of fee-free credit cards available as well.
READ MORE: How much does a credit card cost?
Similarities Between Charge Cards and Credit Cards
Charge cards and credit cards also have significant similarities.
- You use these cards the same way. You can swipe them in a shop or enter your details online, make a purchase, and pay later.
- Both charge cards and credit cards offer rewards like welcome bonuses, points, miles, or cash back.
- Both types of cards report your payments to the credit bureaus.
- Both typically charge late payment fees, though these fees will typically be higher for charge cards.
- Both card types can incur significant debt and damage your credit if you don’t use them wisely.
Both charge cards and credit cards let you make purchases and build credit. The differences are still important, and if you’re choosing between them, you should choose carefully
What Credit Score Do You Need to Qualify For a Charge Card?
Most charge cards require at least good credit, which indicates a minimum score of 670 to 700. Some charge cards have higher requirements.
For example, the American Express Plum charge card has a minimum credit score of 700, while the American Express Centurion charge card requires an 800 score.
How Does a Charge Card Affect Your Credit Score?
Like credit card companies, charge card issuers report your payments to the three major credit bureaus. Both types of cards will appear on your credit report. If you make all of your payments on time, you will build a positive payment history and help your credit score. If you make late payments, you will harm your credit score.
If you hold the card for an extended period, you will extend the length of your credit history, which can also boost your credit score.
A charge card is reported as revolving credit, which can improve your credit mix if you don’t have other revolving credit accounts.
A charge card has no credit limit, so it does not contribute to your credit utilization ratio. This is a significant component of your FICO score, so a well-managed credit card should boost your credit more than a charge card would.
To learn more about how charge cards impact your credit score, check out this video:
Which Credit Card Companies Offer Charge Cards
Charge cards have largely fallen out of favor in the U.S. market, where carrying significant credit card balances is the norm. But some options are available for both individuals and businesses.
Here are some popular charge cards available in the U.S.
- The American Express Plum Card has a $250 annual fee, a discount for early payments, and a 60-day statement period. The minimum credit score is 700.
- The American Express Centurion Card has a $5000 annual fee and a minimum credit score of 800. There’s an extensive package of travel-focused and other rewards. It’s available by invitation only.
If you have a small business, a charge card can be a good way to help you manage expenses. Here are two good options.
- The Capital One Spark Cash Plus is a business charge card. It requires excellent credit and carries a $150 annual fee. There’s a $200 bonus if you charge over $200,000 in a year. You earn 5% cash back on hotels and rental cars and 2% on all other purchases.
- Chase’s Ink Business Premier Visa is also a solid option for small business owners. It offers a $1,000 bonus for spending $10,000 in the first 3 months. In addition, you can earn between 2% to 5% cash back on purchases. The card’s annual fee is $195.
Pro tip: Many charge cards now offer an interest-bearing “pay over time” option, so they aren’t pure charge cards, but they offer most of the same features as charge cards. Note that you’ll pay interest on a charge in which you choose to “pay over time.”
Who Benefits From Using a Charge Card?
Most consumers will be better off with a credit card. Credit cards offer the same abilities with more versatility, lower fees, and far more available options.
A charge card could be a good option if you have good credit, you need high cash flow, and you can pay in full each month.
Charge cards are also commonly used by businesses with solid cash reserves and need to make large purchases that might exceed the credit limit of a credit card.
If you want to carry a monthly balance or think you might need to carry a balance at some point, a charge card is not a good choice.
Other Credit Card Options
There are many more credit cards available than charge cards, so you’ll have a wider range of specialized options.
- Secured credit cards require a deposit, but they are available to people with low credit scores or even no credit scores at all.
- Rewards credit cards offer rewards specifically tailored to different lifestyles. You can choose cards with rewards focused on day-to-day expenses like gas and groceries, travel, entertainment, and many other options.
- Balance transfer cards offer a useful debt consolidation option for people with good credit.
- Student credit cards offer a package focused on the needs of students, especially students who are getting their first credit cards.
- Store cards may be store-specific, or they may be general-use cards with rewards focused on a specific store. They typically have relatively easy application criteria.
If you have specialized needs, you are more likely to find a credit card tailored to those needs than an equivalent charge card.
The Bottom Line
If you’re looking for a card, your first choice will almost always be a credit card. The high annual fees and inability to carry a balance make a charge card a poor choice for most consumers.
If you’re looking for a business card or if you have a specific need for a card that has no credit limit, a charge card can be a viable option. Just be sure that you understand what you’re getting and why and that the benefits justify the annual fee!
FAQs
A charge card works like a credit card, but you can’t carry a balance. You have to pay in full at the end of each statement period. A store-branded card is issued by a specific store either for use only in that store or with rewards focused on that store. A store-branded card is usually a credit card, but some stores may offer branded charge cards.
Charge cards have no preset spending limit and the bill must be paid in full each month. A debit card is linked to your checking account. When you use a debit card to make a purchase, the funds are immediately deducted from your account. You can only spend the money that is available in your account, and if you try to spend more than you have, the transaction will be declined. Unlike a charge card or credit card, a debit card does not allow you to borrow money or build credit.
The American Express Platinum Card is a hybrid card. It offers most of the features of a charge card, but also gives cardholders an interest-bearing “pay over time” option, so it isn’t a pure charge card.
Amazon cards, including business credit cards, are revolving lines of credit that can be used at any retailer. They are not charge cards, because they don’t have to be paid in full each month.