Charge card vs. credit card: How are they different?

Charge cards and credit cards are similar payment methods. But how lenders treat payments and spending limits is often different. 

In general, credit cardholders borrow against a set credit limit and may be able to carry a balance from month to month. Charge cardholders, on the other hand, typically agree to pay off their balances every month and may not have preset spending limits.

What you’ll learn:

• A charge card looks like a credit card, and you can use both payment methods as a way to make purchases without needing to carry cash. 

• One big difference between charge cards and credit cards is that a charge card’s balance has to be paid in full each month.

• Charge cards typically don’t have a preset credit limit like credit cards do. Instead, the card issuer might approve purchases based on financial patterns and habits.

• Charge cards aren’t as common as credit cards, but merchants may still accept them as a valid method of payment.

Charge cards are a type of credit account that generally don’t have preset spending limits. Instead, transactions are approved based on things like spending patterns, payment history and other credit-related considerations.

At the end of the month, cardholders typically must pay the full balance on the card. Minimum payments and interest rates aren’t usually charged, but if the balance isn’t paid in full each month, there may be additional fees or penalties.

If charge card issuers report accounts to credit bureaus, it could affect these credit-scoring factors: 

• Payment history

• Credit age

• Credit mix

Because charge cards don’t have preset spending limits, they don’t affect credit utilization ratios.

Credit cards are a type of revolving credit. They allow cardholders to continuously borrow and pay back money as long as the account is in good standing. Credit cards have a set credit limit, which is the maximum amount of money a cardholder can spend on the card.

Cardholders may be able to carry balances from month to month. But if the balance isn’t paid in full, issuers might charge interest.

Credit cards can impact a variety of credit-scoring factors that influence your credit scores, such as:

• Payment history

• Credit age

• Credit mix

• Credit utilization ratio 

When used responsibly, a credit card can positively impact credit scores. That means doing things like making on-time payments and keeping a low credit utilization ratio. On the other hand, keeping a high credit card balance and letting interest charges accumulate could hurt credit scores. It could also harm other financial measurements, such as your debt-to-income (DTI) ratio.

Deciding between a charge card and a credit card depends on your circumstances and what you’re hoping to get out of a new card.

You might apply for a charge card if you would rather not worry about a preset credit limit or paying interest. Even without a preset credit limit, issuers generally still approve purchases based on things like your spending habits. And you’ll need to pay off the balance each month to avoid late fees and penalties.

You might choose a credit card if you’re looking for a wide variety of options and financial flexibility. Credit cards can potentially offer more wiggle room in your finances. 

For example, if you want to make a large purchase, a credit card might allow you to spread out the payments over time. That could be especially beneficial if you use a credit card with a promotional interest rate. Just keep in mind that if you carry a balance from month to month, you’ll still be charged interest for the unpaid portion.

Whether you’re building credit or earning rewards, both charge cards and credit cards may be able to help when they’re used responsibly. Making on-time payments, for instance, can help you improve your credit scores over time.

Before choosing a card, take the time to review the benefits, requirements and terms. And if you decide you’re in the market for a new credit card, you can compare credit cards from Capital One. If you see one you like, you can check whether you’re pre-approved for offers—without hurting your credit scores.