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The Difference Between a Charge Card and a Credit Card

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Updated April 3, 2024

Charge cards and credit cards: They look identical and they make purchases in the same way.

So how different can they be?

There are really only a couple of dissimilarities—but they’re doozies. Before you go applying for one or the other, you should know what they are.

The distinctions focus on two key features: credit limit and payment terms. One product requires full payment each month and doesn’t cap your spending capacity. The other does set a credit limit but gives you more options for paying your debt.

There are pros and cons of each. Let’s take a look.

Charge card vs. credit card: Overview

Charge CardCredit Card
Credit  limit
Fluid
Fixed
Payment options
Pay in full each month
Carry a balance if necessary
Card selection
Small
Large
Fees
Late/returned payment fees, cash advance fees
Late/returned payment fees, cash advance fees, APR

What is a charge card?

A charge card is used almost exactly like a credit card. It works on credit in that you’re borrowing money from the issuing bank to make purchases, and it is trusting you to pay it back. But as you’ll see, charge cards are less flexible than credit cards when it comes to repaying debt.

Charge cards don’t generally have any out-of-the-ordinary requirements to be approved. If you’re able to open a credit card, you generally can open a charge card of equal caliber.

How does a charge card work?

Charge cards used to be more popular, but very few banks issue them anymore. There are a couple of unique attributes that, if you’ve only used credit cards up to now, may seem odd.

First, your spending limit is fluid. In other words, you don’t have a set credit line. Instead, the amount of money you’re able to spend may vary according to your spending habits. If you’re a big spender, your card will likely not decline even for sizable purchases. Some issuers, such as American Express, offer a tool within your online account to check your “spending power.” Simply enter a dollar amount, and Amex will tell you if a purchase of that size will be approved.

Another unique feature of charge cards is that they require that you pay your balance in full each month. If you fail to do this, you’ll be charged late fees and possibly risk your card being closed.

Key benefits and disadvantages of charge cards

You may be able to spend more than a credit card would allow

While credit cards enforce a strict credit limit, charge cards can be better for those who often make large purchases that they can quickly pay off. This can come in particularly handy for small businesses that may need to charge tens of thousands of dollars at a time—something that may not be possible with a credit card.

Your credit score will be affected differently

Because you don’t have a preset spending limit, your balance will not count against your credit utilization. Credit utilization is the percentage of credit you’re currently using. For example, say you have just one credit card and it has a $10,000 credit limit.  If you make a $5,000 purchase, your credit utilization is 50%. Credit utilization is one of the weightiest factors of your credit score, accounting for a whopping 30%. If you regularly run up high balances on your credit cards, your credit score likely suffers because of it.

But charge cards don’t have a stated credit limit—so even if you were to charge $20,000 to your card, there’s no way to calculate how much of your credit that you’re using. Therefore, the amount you owe on a charge card doesn’t count against you.

You can’t carry a balance

The debt you rack up on a charge card each month cannot be floated. If you don’t pay off your card in full each due date, you’ll be dinged with a late fee that is often a percentage of the outstanding balance. Even worse, your card may stop functioning altogether until you bring the account current.

This sounds like all bad news, but it’s really not. The fact that you’re incapable of carrying a balance means you’re guaranteed not to pay interest for carrying a balance.

What is a credit card?

Credit cards, similar to charge cards, are a revolving line of credit extended to you by the bank. There are lots of options for everyone—from simply trying to build credit for the first time to traveling the world for free, thanks to valuable rewards and ongoing benefits.

How does a credit card work?

Like charge cards, credit cards give you the ability to purchase things with the bank’s money, then reimburse it later.

You’ll be assigned a specific spending limit upon account approval based on your creditworthiness. As you make purchases, your credit limit dwindles. However, you can pay all or part of your credit card balance to recoup a portion of your credit line to use again. Someone with a $5,000 credit line could conceivably spend $20,000 per month as long as they quickly pay off their card after making purchases (just note that some credit card issuers don’t like when you spend more than your credit line in a month).

You don’t have to pay off your card each month, as is required with a charge card. If  you’re unable to make your full payment, you’re not at risk of defaulting, as long as you make your minimum payment, which is typically a fraction of your balance.

Key benefits and disadvantages of credit cards

You can carry a balance if you need to

Again, it’s a boon to have the option to carry a balance month-to-month—but you should not do this if you can help it. Credit cards have nightmarishly high interest rates that, if you’re not careful, can turn into a money pit. Any rewards you earn through spending will be offset by the interest you pay.

Nearly all cards on the market are credit cards

No matter your financial goals, there’s a credit card that perfectly complements you. Myriad cards pay out cash back and travel rewards, offer 0% intro APR, and more. Even if you’re just starting your credit journey, you’ll have numerous student credit cards and secured credit cards from which to choose.

Prefixed spending limit

A firm spending limit means two things:

  1. Your credit utilization will affect your credit score. If you keep your amounts owed to under 30% of your available credit, this will bolster your credit score. If it’s above, it may lower your score.
  2. You may not be able to make large purchases. Depending on your creditworthiness, you may find yourself with a credit line of just a couple of thousand dollars.

Key differences between charge cards and credit cards

Let’s recap these card characteristics, this time side-by-side.

Spending limit

A credit card limits the amount of money you can spend before you need to make a payment. A charge card doesn’t specify how much you can spend. That’s not to say you could pop a superyacht onto your charge card without being declined. The truth is that there is a limit to how much you can charge—but that number can fluctuate depending on your spending habits.

Payment option

With a charge card, you’re required to pay your entire balance each month on or before your due date. Failing to do so will result in late fees, temporarily suspended use of the card, and even a closed account. 

With a credit card, you can carry a balance across multiple billing cycles. Your account will remain in good standing as long as you make the minimum payment each month. Some charge cards offer the ability to carry a balance after enrollment. For example, The Platinum Card® from American Express has a feature called Pay Over Time, which lets you carry a balance across billing cycles—effectively turning it into a credit card without a preset spending limit.

Card selection

There are exponentially more credit card options than charge cards. All card issuers offer credit cards, while very few issuers offer charge cards. 

Amex offers a variety of no preset spending limit (NPSL) cards, such as the American Express® Gold Card, which operate as charge cards (though they don’t like it when you refer to their products as charge cards). Capital One offers the Capital One Spark Cash Plus which is targeted at small business owners. These are the two major sources of charge cards issued by major banks.

Fees

Both credit cards and charge cards incur standard fees such as late payments, returned payments, and cash advance fees. Depending on which card you open, you may also be subject to foreign transaction fees and annual fees. However, because charge cards require you to pay off your balance in full each month, you won’t accrue interest as you can with a credit card.

Which card is the better choice for you?

If you’re the kind of person that pays off your balance in full each month, there really isn’t much difference between a charge card and a credit card. You’ll probably be equally happy with either.

However, the best cards for cashback, airlines, hotels, 0% intro APR, and just about every other category you can imagine are credit cards—not charge cards.

Notably, if you’ve got limited or bad credit, there aren’t really any personal charge cards to choose from that are designed to build your credit. Because of the overwhelming choice, you’ll have an easier time finding a credit card that fits your lifestyle.

TIME Stamp: The difference between a charge card and a credit card comes down to spending limit and payment terms.

The flexible spending range of charge cards give you the potential to spend beyond what a credit card with a rigid credit limit might allow. The tradeoff is that you’ll have to pay your charge card balance in full each month.

Frequently asked questions (FAQs)

How does a charge card affect your credit score?

Applying for a charge card will temporarily lower your credit score in that your credit will endure a hard inquiry from the lender when checking to see if you’re a responsible candidate. But your score will increase if you exhibit healthy credit habits with your new card. Uniquely, your spending activity with your new charge card will not affect your amounts owed. That’s because charge cards don’t issue a specific credit limit—so there’s no way they influence your credit utilization.

How does a credit card affect your credit score?

A credit card affects your credit score more than a charge card. When you apply for a new credit card, you’ll receive a hard credit inquiry, which will lower your credit score temporarily. But if you’re approved, your overall credit utilization will immediately lower because you’ve just received new, unused credit. Credit utilization accounts for 30% of your overall credit score, so that’s a big deal. Of course, your credit score will also benefit from handling your credit responsibly—that is, paying your bills on time, keeping your card open for many years, etc.

What are alternatives to either a charge card or a credit card?

If you’re not interested in either a credit card or a charge card, you may want to consider a debit card or a prepaid card that allows you to load money from a bank account. These cards aren’t as secure as credit and charge cards, and they don’t come with the rewards, earnings or ongoing benefits, but they’re still better than lugging around excessive amounts of cash.

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