Charge cards vs. credit cards: What are the differences? 

5 min read
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On a surface level, it may seem like there is little difference between a charge card and a credit card. Both help you finance purchases to pay off at a later date without cash in hand. But there are distinct differences that separate the two; namely when it comes to making payments and how much credit you have to spend.

If you pay your balance in full and on time every month, a charge card might be a good choice, says credit expert John Ulzheimer, formerly of FICO and Equifax.

“At the end of the month, you have to write, in some cases, a really big check,” he says about charge cards. “And you don’t have a whole lot of options when it comes to prolonging your payback of the balance. It’s a built-in debt-prevention tool within the card.”

Savvy budgeting and financial prowess can put you in a position to pay off your card in full each period. But if you tend to carry a balance from month to month, a credit card is likely better for you. Here are a few key differences between the two card types and how you can choose the best one for your lifestyle.

1. Credit limit

Some charge cards don’t offer a preset credit limit like you’ll find with credit cards. This doesn’t necessarily mean there’s no maximum to your monthly spending with a charge card; instead, your issuer may set a spending limit based on factors like your income and spending habits.

Depending on your payment history, credit record and other aspects of your card usage, the limit can be moved to fit your needs and risk factors — a useful feature when running a business or spending heavily.

Although it’s not uncapped spending, this feature can still be a major advantage of charge cards. Keep in mind that even with a credit card you can have your limit increased, but they’re less frequent and will need approval from your card provider.

If you have a charge card, you can access information about your spending limit by going online or to your issuer’s mobile app.

2. Interest rate

The requirement of charge cards to pay balances off monthly may seem like a tough commitment, but it’s also a great debt prevention tool to keep you from accruing high interest charges.

Some charge card issuers, like American Express, allow you to make minimum payments towards your balance and roll the rest over, similar to credit cards. If you choose to do so, you’ll also take on interest on the unpaid portion of your balance, though.  Be sure to read your credit card agreement closely to avoid facing any unexpected interest charges.

Even the best credit cards can become debt targets with the wrong habits, so the added discipline demanded by charge cards may appeal to some. It’ll take self control, but paying your balance in full each month will leave you with better financial health in the long run. If you are worried about paying off balances or expect to take on interest in the near future, look to credit cards with a zero percent APR introductory period.

3. Late fees

The types of fees you may take on with a charge card are generally the same as a typical credit card, but there are a couple of differences worth mentioning.

Rather than accumulating interest on outstanding balances, you may be charged a steep late fee on an unpaid monthly balance with a charge card. Too many late fees may also lead to account closure or suspension.

Most credit cards feature less severe late fees, and with some options (such as the Citi Simplicity® Card) you’ll avoid them entirely. Plus, making a minimum payment on your credit card allows you to move forward without a fee, giving a little added flexibility.

4. Annual fees

Many credit cards also come with annual fees. While some charge a hefty price tag, there are also plenty of no annual fee credit card options with serious value.

Since your issuer is less likely to make money on interest payments for a charge card, they’re more likely to charge an annual fee. However, like with annual fee credit cards, charge cards are often paired with rewards structures that allow you to easily earn back the cost.

For instance, while  it’ll cost a pretty penny ($595 annually) to get The Business Platinum Card® from American Express, the potential savings and perks, like travel statement credits and lounge access, make it one of the best business cards on the market.

5. Rewards and perks

While charge cards have traditionally been seen as the top rewards cards associated with unmatched upscale perks, credit cards have increasingly upped the rewards ante over the past few years.

Charge cards still often feature top of the line rewards and perks, especially for those interested in travel benefits, and the flexible spending capabilities offered by charge cards allow for huge points and miles earning potential.

6. Credit score impact

Both credit card and charge card accounts will report your payment history to the three credit bureaus: Equifax, Experian and TransUnion. Either card can be a helpful tool to build your credit effectively with responsible use, but charge cards have a slightly different impact.

Due to their nature, charge cards impact factors like your payment history and length of credit history, but will not have any effect on your credit utilization. Because a charge card doesn’t have a preset credit limit, utilization is more difficult to determine, so scoring models generally don’t account for charge card utilization rates.

On the other hand, credit cards will impact each factor that makes up your credit score. Practicing healthy financial habits with a credit card can boost every aspect that’s considered by the credit bureaus to determine your score.

7. Accessibility

In addition to a high annual fee, there are other barriers to entry that may make charge cards less accessible for some consumers.

American Express is the leading issuer of charge cards, while options are somewhat limited across other issuing banks. There is much more to choose from when it comes to credit cards. It’s easy to find various combinations of APRs, rewards structures, benefits, fees and other card features that make it possible for any potential cardholder to find the best fit for their lifestyle.

In addition to the limited amount of choices, charge cards require proven creditworthiness. It’ll generally take at least a good credit score (usually 670 or higher) to qualify for a charge card, which can make approval more difficult for new cardholders and those with an unfortunate financial history. On the other hand, credit cards provide options for novice cardholders, allowing for applicants to be approved with bad credit or even no credit history. Additionally, secured credit cards are a good way for newcomers to establish (or reestablish) their credit.

Using a charge card to build credit

While a charge card’s credit score impact is limited, practicing healthy financial habits with your charge card can still improve your score.  For instance, because it won’t count towards your credit utilization, using a charge card for a large purchase or heavy monthly spending that you’re able to pay off can be useful to avoid a hit on your creditworthiness.

Ultimately, your credit score is determined by how you handle your finances, not the card you carry. Before applying for any charge card or credit card, review your spending habits and do your own research into available options to ensure you find a good fit for your habits.