Charge cards vs. credit cards: What’s the difference?

Many people use credit cards these days, but charge cards are also an option. There are differences between how charge cards and credit cards work—especially when it comes to monthly payments.

Think of an alarm clock. With a charge card, you have no choice but to wake up—and pay up—completely. But a credit card comes with a “snooze button.” If there’s a reason you can’t pay in full, you can make at least the minimum payment and pay your balance over time. Read on for more information.

Key takeaways

• A charge card is similar to a credit card. But a big difference is that the total balance often has to be paid in full each month.
• Charge cards typically don’t have a preset credit limit like credit cards. Instead, the card issuer approves purchases based on financial patterns and habits.
• Charge cards aren’t as popular as credit cards.

A charge card is like a credit card in many ways. But instead of having a preset credit limit, 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 must pay the full balance on the card. That means charge cards don’t have minimum payments or interest rates structured the same way a credit card does. But if the balance isn’t paid in full each month, there may be additional fees or penalties.

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 ways:

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. So if you have a charge card, responsible credit use is still important.

Like credit cards, charge cards can be beneficial if they’re used responsibly. One benefit is that they often have no preset spending limit. Instead, they might have a maximum limit that could change monthly. Additional benefits will vary based on the specific card and issuer. Here are a few potential perks:

No interest 

Generally, no interest is charged on charge cards because the customer typically doesn’t carry a balance.

Rewards 

Charge cards may offer rewards. Depending on the card, they could come in the form of cash back, rewards points or travel miles.

There are several things to consider when applying for or using a charge card. You might want to be aware of any potential fees. You may also want to consider whether you’ll be able to pay off the balance in full each month and how it could affect your credit.

Potential late fees

Charge cards usually must be paid in full every month. So you may be charged a 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. Some charge cards might waive the fee in the first year, 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. 

Not available to everyone

As with a credit card, credit history plays an important role in whether you qualify for a charge card. You often need at least a good credit score. So if you’re new to credit or rebuilding credit, you may want to consider other options, such as a secured credit card.

Limited card issuers

Charge cards are not 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.

Whether you’re interested in building credit or earning rewards, both charge cards and credit cards could help you do that with responsible use. Before making a decision, take the time to review the benefits, requirements and terms.

Remember, practicing good spending habits, paying on time and using your cards responsibly can help you improve your credit scores over time. 

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 and find the card that’s best suited for you.