Charge Card vs Credit Card: What is the Difference?

Image to accompany to article explaining the difference between charge cards and credit cards Getty Images

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Credit cards are an important financial tool you should consider employing.

Not only can they give you valuable protection against fraudulent and incorrect charges that debit cards or cash do not; they can help you save money on everyday purchases, and even help you travel the world for little to no cost out of pocket.

But before you sign up for a new card, or for your first one, there is a small distinction to be aware of: Some credit cards are actually considered charge cards, while others are straight-up credit cards.

There’s really no major difference between the two when it comes to how you use them. The difference comes when it’s time to pay your bill. Depending on your current financial situation, one could be better for you than the other. 

Let’s take a closer look.

Charge Cards vs. Credit Cards

Charge cards do not have a credit limit — the most you can spend on that card — whereas credit cards do. That’s what the difference between the two boils down to.

When you open a credit card account, the card’s issuer will give it a credit limit. That number is determined by your credit score and by several data that you must submit when applying for a credit card, such as your annual income. That number won’t necessarily remain the same for the life of the account; the issuer can unilaterally raise or reduce it, and you can ask to have it raised too. But in any case, it marks the upper limit of what you can put on that particular card.    

Regardless of what that limit is, the cardinal rule of credit cards is to use them responsibly and pay your bills on time and, if possible, in full to avoid paying high interest rates on the balance.

But not having a pre-set spending limit can be a benefit for certain people.

“If you’re regularly making larger purchases and then immediately paying them off each month, a charge card will give you more spending flexibility,” says Madison Blancaflor, Credit Cards Reporter at The Points Guy (which shares an owner with NextAdvisor.)

The flip side to this, though, is that you’ll have to pay the entire bill in full every month on a charge card. If you don’t, you will be hit with late fees, any future charges may be denied until the balance is paid, and the issuer may cancel your account.    

If you carry a credit card, on the other hand, you only have to pay the minimum payment each bill. You can decide to leave any remaining balance on the card and pay interest on it. If you do that, be mindful of the annual percentage rate (APR) on your credit card as it can really add up over time — and can even land you in some hot water

Interest is not charged on charge cards, since you are required to pay your bill in full each month.

“If you’re paying off your bills in full each month, which is highly recommended,, there really isn’t much of a difference between the two types of cards,” Blancaflor says. But if an emergency comes up, you may want to put the spending on a credit card since you won’t be able to pay that off over time with a charge card, she adds.

Applying for Charge Cards

Charge cards aren’t as widely offered as credit cards.

Being approved for a charge card  generally requires a good credit score, since it demands discipline from cardholders. Charge cards also tend to offer good rewards for spending.

Bottom Line

Charge cards and credit cards are very different in one key aspect: how you pay for your purchases. Before you apply for either one, it’s important to take stock of your budget and of your spending to find a card that closely matches your needs.