Charge Card vs. Credit Card: A Comparison Guide

A charge card and a credit card are often confused, but they have key differences you should be aware of. While a credit card usually has a set limit and doesn't require you to pay it in full each month, a charge card may have variable limits and must be paid in full each month. Read on to understand charge card vs. credit card and which to choose for different situations. 

The Basics of Charge Cards

A charge card functions like a credit card in that you can use it to make purchases without carrying cash. However, unlike a credit card, you will need to pay off a charge card in full each month. Also, unlike credit cards, charge cards have no preset spending limits. Instead, the card issuer approves charges based on factors like your credit score, spending habits and income. Card issuers can adjust to your spending habits over time, even if the spending amount fluctuates widely from month to month.  

However, if you plan to make a big purchase, you may need to contact the card issuer to confirm whether they'll approve the amount you plan to charge. A charge card gives you the convenience of a credit card without the debt, as you'll need to pay it back each month. 

How Charge Card Works

A charge card allows you to make charges by scanning or inserting your card at checkout, in stores and online. You'll have to pay off the charge card in full at the end of each month. If you don't pay the charge card by the time it's due, you may incur late fees or other penalties. 

Charge cards differ from credit cards, which issue a line of credit you don't have to pay back in full at the end of the month. It also differs from prepaid credit cards or debit cards. Prepaid and debit cards are attached to a bank account and draw on funds from that account.

Pros and Cons of Charge Cards

Several advantages and disadvantages to charge cards exist. These include:

The Basics of Credit Cards

A credit card is a payment card issued by a bank that allows the cardholder to purchase goods or services online or in stores. With a credit card, you're approved for a maximum line of credit based on your credit score, income and other factors. When you charge the card, you must repay at least the minimum payment each month. You're not required to pay back the card in full, but you'll accrue debt if you don't pay it off. 

Credit cards charge variable annual percentage rates (APR) from 18% to 30% or more. Some credit cards do offer introductory 0% APR. Of course, credit cards are widely used worldwide, making it easy to make purchases. There are also different types of credit cards offering varying rewards or perks. Learn more about debit cards vs. credit cards.

How Credit Cards Work

Credit cards are issued by a bank, with a set credit line and an APR if you don't pay off the card in full. You can use credit cards to make purchases, balance transfers or cash advances by inserting, swiping or holding the credit card near a payment terminal. Credit cards have a set payment due date in which you must pay at least the minimum each month. 

Pros and Cons of Credit Cards

Credit cards have many advantages along with a few significant disadvantages. Here is an overview of the pros and cons.

Charge Card vs. Credit Card: What Are the Key Differences?

Several key factors distinguish a charge card from a credit card. It's important to understand these differences to choose the best option for you. 

Credit Limit and Spending Power

A credit card has a specific set credit limit that will be noted on your credit card statements and in your online account. In contrast, a charge card doesn't usually have a set credit limit. The bank will approve charges based on your spending habits, credit score and additional criteria. 

Fees and Charges

Fees and charges vary from card to card for credit and charge cards. Some credit cards have an annual fee, while others don't. In addition, credit cards charge interest on debt you don't pay off at the end of the month. Interest rates range from 18% to 30% or more. 

Charge cards usually have an annual fee, although some do not. There are no additional fees to use the card, although if you don't pay the card in full each month, you can be charged high fees. In terms of credit vs. charge cards, there's no clear winner in annual fees, but credit card interest rates on debt will cost you more in the long run. 

Rewards and Benefits

Both charge cards and credit cards may offer rewards. Charge cards come with spending rewards and travel or entertainment perks. The best rewards credit cards offer comparable or even better rewards than charge cards. However, a standard 1% cash-back credit card doesn't offer the same benefits.  

Suitability and Eligibility

Premium charge cards like American Express are only available to consumers with excellent credit. In general, charge cards are only available to consumers with good to excellent credit, while credit cards are available for consumers with different credit scores. Charge cards also have fewer options available and stricter qualification requirements. 

Acceptance and Usability

Both credit cards and charge cards are widely accepted, although certain charge cards, like American Express, may not be accepted by all vendors. 

Credit Score Impact

A credit card can impact your credit score either positively or negatively. Paying off the card in full each month can build a positive credit history while building up a high debt or a high credit utilization ratio can harm your credit score. 

Credit and charge cards report payment history to the three credit bureaus: Equifax, Experian and TransUnion. However, charge cards don't report credit utilization ratio.

Choosing Between a Credit Card and a Charge Card

When choosing between a credit card and a charge card, consider how you will use it. Also, consider your individual situation. Ask yourself:

• Can you pay off the card in full each month?
• Which offers better rewards or perks for your situation?
• Can you afford the annual fee?

You can also consider your spending habits, financial responsibility and personal preferences. For example, some consumers struggle with the temptation of taking on debt with a credit card.

Should you Choose a Charge Card vs. Credit Card?

A charge card and a credit card both offer a convenient payment solution. While a charge card may offer greater benefits and perks than some credit cards, they also come with possible higher fees. And if you've got a low credit score, you might not qualify for a charge card. A secured credit card is a good option for consumers with a low credit score. For many consumers, the decision isn't for a credit card vs. a charge card because you can choose both. Learn more about how many credit cards you should have here. 

Frequently Asked Questions