What is a charge card?

At a glance, charge cards and credit cards can seem very similar. After all, they both give cardholders the flexibility to borrow money for purchases now and make payments later. But there are some important differences.

Learn more about charge cards and how they work.

Key takeaways

  • A charge card offers the ability to make purchases and typically has to be paid off in full each month.

  • Most charge cards have no preset spending limit.

  • Interest charges typically aren’t associated with charge cards, but they may have high annual fees and late payment fees.

  • Since most charge cards require the balance to be paid in full each month, having a charge card doesn’t typically affect credit utilization, an important credit-scoring factor.

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How does a charge card work?

A charge card is a method of payment that typically has no preset spending limit.

If it does have a spending limit, the limit may be based on things like the cardholder’s payment history and purchase habits. Cardholders with good to excellent credit scores may get a higher limit than cardholders with less-than-perfect credit.

Cardholders often have to pay off the charge card in full at the end of each billing cycle. There typically aren’t interest rates or minimum payments tied to the card, but late fees can be charged for late payments in addition to an annual fee.

Charge cards vs. credit cards

The major differences between charge cards and credit cards are that charge cards don’t have a credit limit or interest charges and the cardholder is obliged to pay the full balance each month. That being said, some charge cards allow you to carry a portion of your balance or certain purchases over time and pay back with interest.

How to get a charge card

While charge cards are less common than credit cards, several issuers still offer charge cards. 

The Capital One Spark 2% Cash Plus card is a charge card for businesses. It offers rewards like unlimited 2% cash back on every purchase. Cardholders agree to pay off their balance in full every month.

What credit score do I need to get a charge card?

Credit score requirements vary by issuer and aren’t the only factor in approval. However, certain cards may be geared toward applicants with high credit scores.

Will a charge card affect my credit score?

Charge cards can affect your credit scores for better or for worse. It just depends on whether the card is used responsibly. Here’s how using a charge card could impact your credit scores:

  • Payment history: Since both FICO® and VantageScore® use payment history as a factor in their credit-scoring models, paying off a charge card each month could help improve your credit scores.

  • Credit age: Credit-scoring models consider the length of your credit history. Having a charge card open and in good standing over time could help your credit scores. But applying for and opening a new charge card account could lower your average credit age and temporarily drop your credit scores by a few points.

  • Credit utilization: Because charge cards typically don’t have a credit limit or allow you to carry a balance, your credit utilization ratio—or the percentage of your available credit you use across all revolving accounts—usually isn’t a factor.

Potential pros and cons of charge cards

Here are a few advantages and disadvantages of using a charge card:

Pros of charge cards

Charge cards can offer several benefits, including:

  • No fixed credit limit: Because a charge card doesn’t have a set spending limit, it may be able to be used for large purchases.

  • 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. But late payment fees may be charged if the balance isn’t paid off on time.

  • Rewards benefits: Many charge cards allow cardholders to earn rewards, like points or cash back, on spending categories like dining and travel.

Cons of charge cards

Charge cards may not be the right fit for everyone. Here are some potential drawbacks:

  • High fees: Charge cards can feature high annual fees and steep late payment fees for missing or late payments.

  • Strict repayment terms: In most cases, charge cards don’t allow cardholders to carry a balance from month to month. Instead, cardholders may be required to pay off their balance in full each month.

  • Credit score requirements: Requirements may vary depending on the issuer, but charge cards are often geared toward those with excellent credit scores.

Charge cards in a nutshell

Charge cards can be a useful tool, thanks to flexible spending terms and no interest charges. But it’s worth considering whether a charge card is the best fit for you and your financial plans.

If you’re searching for a credit card, you could compare Capital One cards to see which option might be right for you.

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