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

When you’re looking at credit options, you may come across charge cards and credit cards. While the two might look alike, there are differences between how charge cards and credit cards work, especially when it comes to monthly payments. Read on to learn how the two types of cards compare.

Key takeaways

  • A charge card is similar to a credit card. But a big difference is that a charge card’s balance often 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.

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Credit cards and charge cards at a glance

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 set credit limits, which is basically the maximum amount of money a cardholder can use.

A credit card’s balance doesn’t have to be paid off in full each month, but a minimum monthly payment is usually required. And if the balance isn’t paid in full, interest charges may be added to the balance.

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

At the end of the month, charge card users 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.

Differences between charge cards and credit cards

Most of the major differences between charge cards and credit cards have to do with preset spending limits, payment requirements, fees and availability. You might not hear about charge cards as much as credit cards, but they’re still around—even if they aren’t always advertised as much as credit cards are.

You can make purchases with either card in almost exactly the same way, and the cards often look the same. But they have some key differences. Here’s a quick look at a few of them:

  Charge card Credit card
Preset spending limit Typically no Typically yes
Payment requirements Usually must be paid in full monthly Paying the monthly minimum keeps the account in good standing
Late payment fees Typically yes Typically yes
Annual fees Typically yes Depends on the card
Availability Less common More common

How do charge cards and credit cards affect credit?

Charge cards might affect your credit scores differently from a typical credit card. With credit cards, your credit utilization ratio—which measures how much of your available credit you’re using—can affect your credit scores. Because charge cards don’t typically have credit limits, credit utilization may not be a factor. It’s a good idea to check with the card issuer, though.

Remember that other factors that affect your credit scores—like your ability to make payments on time —are still relevant to charge cards, as well as credit cards. So if you have a charge card or credit card, responsible credit use is important.

Benefits of charge cards vs. credit cards

The benefits of a charge card can vary based on the specific card and issuer, but they may include:

  • No preset credit limit. Charge cards often come without preset credit limits. Instead, issuers may approve purchases based on financial patterns and spending habits.
  • No interest. Generally, no interest is applied on charge cards. That’s because the card issuers typically require cardholders to pay off the full balance at the end of the month, so there often isn’t anything to charge interest on. 
  • Rewards. Charge cards may offer rewards. Depending on the card, they could come in the form of rewards points or travel deals.

Credit cards can also have their perks and advantages when they’re used responsibly, including:

  • Rewards. Like charge cards, some credit cards also offer rewards. They may come with cash back, travel miles or other types of rewards.
  • 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 have a higher credit limit to help you access the funding and spread the payments out.
  • Credit building opportunities. Responsible credit card use can have an overall positive effect on your credit history. By doing things like making consistent, on-time payments toward your credit card balances and maintaining a credit utilization ratio of less than 30%, you can help boost your credit scores.
  • Widely accepted and accessible. Credit cards are a commonly used and accepted form of payment. Options may be available for all credit levels, from those with excellent credit to people who are building or rebuilding credit.

Considerations with charge cards vs. credit cards

Before applying for a charge card or a credit card, there are some things you may want to keep in mind.

With charge cards, it’s a good idea to consider the following:

  • Late fees. Charge cards usually must be paid in full every month. So you may be charged a significant late fee or other penalties if you carry a balance. And too many late fees could result in the account being suspended or closed. It could also negatively affect your credit scores.
  • Annual fees. Many charge cards come with an annual fee. It can depend on the issuer, but it’s still a good idea to keep this additional cost in mind when considering a charge card. Remember, some credit cards also have annual fees. 
  • Limited card issuers. Charge cards aren’t as easy to come by as they once were. If you’re looking for other options, there are different types of credit cards that might work instead.

If you’re considering a credit card instead of a charge card, it may be helpful to keep these factors in mind:

  • Minimum payments. If you don’t make at least the minimum payment on your credit card balance each month, it can hurt your credit. Missed or late payments could also lead to fees, higher rates and other penalties.
  • Managing debt. Keeping a high credit card balance and letting interest charges accumulate could hurt your credit scores. It could also harm other financial measurements, such as your debt-to-income (DTI) ratio.

Charge cards vs. credit cards in a nutshell

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 making a decision about 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 check out Capital One’s credit card comparison tool to explore your options. If you see one you like, you can check whether you’re pre-approved for offers—without hurting your credit scores.

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