What is a charge card?
A charge card is a type of credit that lets cardholders borrow money for purchases now and make payments later, similar to a credit card. But unlike a credit card, charge cards typically don’t have a preset spending limit. And charge cardholders often have to pay their balances in full each month.
What you’ll learn:
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Charge cards generally have no preset spending limits, but that doesn’t mean unlimited spending. How much you can spend with the card may change based on things like spending behavior, payment history and credit history.
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Charge cards don’t typically let cardholders carry a balance from month to month.
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Good or excellent credit scores are often required to be approved for a charge card.
How does a charge card work?
Charge cards usually share a few key characteristics.
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They’re similar to credit cards. Each time you make a purchase with a charge card, that amount is added to the card’s balance just like it would be if you paid with a credit card. And like credit cards, charge cards typically have a monthly billing cycle.
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Charge cards have no preset spending limits. This doesn’t mean cardholders have unlimited spending. Instead, issuers often approve purchases individually based on spending behavior, payment history, credit history and other factors.
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Cardholders must pay their balance in full. Charge cardholders have to pay off the card’s full balance each month. Because of this, there typically aren’t interest rates tied to charge cards.
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Penalties can be significant. If the cardholder doesn’t make full payments on time, the penalties and fees can be costly. For example, some issuers charge a percentage of the outstanding balance.
How charge cards differ from credit cards
At a glance, credit cards and charge cards can seem very similar. But there are some important differences between charge cards and credit cards. Here’s a quick summary:
| Charge cards | Credit cards | |
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Credit limit |
No preset spending limit; purchases reviewed and approved on a case-by-case basis | Credit limit based on factors like income and creditworthiness |
|
Payment |
Balance must be paid in full each month | Balance may be carried, but a minimum payment must be paid by the due date to avoid late fees |
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Interest |
No interest rate because of payment requirements | Interest is based on the card’s annual percentage rate and terms |
|
Credit score requirements |
Good or excellent credit scores | Options for all levels of credit |
Charge cards: What are the potential benefits and drawbacks?
If you’re considering a charge card, it might help to know some possible benefits and disadvantages.
Pros
Charge cards can offer several benefits, including:
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No preset spending limit: Because a charge card doesn’t have a preset spending limit, it can adapt to the cardholder’s needs.
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No interest charges: A charge card typically must be paid off in full at the end of each billing cycle, so the card may not have an interest rate.
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Elevated rewards benefits: Some charge cards let cardholders earn rewards.
Cons
Charge cards may not be right for everyone. Here are some things to consider:
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Fees: Charge cards can have high annual fees and steep penalties for late payments.
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Strict repayment terms: In most cases, charge cards don’t allow cardholders to carry a balance from month to month. If you’re looking for a way to pay off a big purchase over several months, a charge card may not be the right fit.
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Credit score requirements: Requirements can vary depending on the issuer, but charge cards are often geared toward those with good or excellent credit scores.
How do charge cards affect your credit scores?
A charge card could help you improve your credit scores if two things are true. First, the card issuer needs to report charge card activity to at least one credit bureau. Second, you need to use the card responsibly over time. If you don’t use the card responsibly—by paying your bill late, for example—your credit scores could suffer.
A charge card can also influence credit-scoring factors like the average age of your accounts and mix of account types. But one credit-scoring factor that typically isn’t impacted by charge cards is credit utilization. Credit utilization is a ratio that measures how much available credit a person uses across all revolving credit accounts.
Charge cards don’t have credit limits or let cardholders carry balances from month to month, so they’re not typically considered revolving credit and don’t affect credit utilization.
How to get a charge card
Applying for a charge card is like applying for a credit card. Factors like income and credit scores generally play a key role when card issuers determine whether to approve an applicant. Here are some basic steps for getting a charge card:
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Research your options. Find a charge card that suits your needs. For example, you might want a charge card with rewards that align with your spending habits.
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Apply for the card. The process of applying for a charge card is usually similar to applying for a credit card. You can typically apply for a charge card online. The issuer may perform a hard inquiry on your credit once you apply. Then, the issuer will let you know whether your application is approved.
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Start using the card. If your application is approved, the card will be mailed to you. Some issuers may give you a virtual card number so you can start using the account before your physical charge card arrives in the mail.
What credit score do I need to get a charge card?
Generally, applicants need good or excellent credit scores to be approved for a charge card. But credit score requirements can vary by issuer.
Key takeaways: What are charge cards?
Charge cards can be a useful payment option, thanks to flexible spending terms and lack of interest charges. But if you’re still working to improve your credit scores, a charge card may not be a good fit. Capital One has credit cards for all credit levels. You can explore Capital One credit cards to find one that’s right for you.
