What Is the Difference Between a Charge Card and a Credit Card?

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Written By SmarterrMoney.org

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When it comes to making purchases, many consumers rely on charge cards or credit cards. While they may seem similar, there are some significant differences between the two.

With a charge card, you have to pay the full balance at the end of the month, whereas a credit card allows you to make a minimum payment every month to pay off the balance.

In this article, we’ll discuss the differences between charge cards and credit cards in detail, their pros and cons, and the differences between the two.

What is a charge card?

Unlike a traditional credit card, a charge card requires you to pay off the full balance each month. In other words, you can only spend what you can afford to pay back at the end of the month.

According to the Federal Reserve Bank of Atlanta, 79% of consumers had at least one credit card or charge card in 2020.

Charge cards are often associated with high-end brands like American Express, which offers the most popular charge card. There is usually no preset spending limit on charge cards, but they come with high annual fees.

Pros and cons

One of the primary advantages of using a charge card is that it helps you avoid debt since you can only spend what you can afford to pay back. Charge cards are also a great way to build your credit scores since they report your payment history to credit bureaus each month.

However, charge cards come with high annual fees, and the penalties for not paying your balance in full can be severe.

What is a credit card?

A credit card is a payment method that allows you to borrow money from a lender to make purchases. Unlike charge cards, you can carry a balance on your credit card and make minimum monthly payments.

Credit cards are usually associated with banks and other financial institutions and have varying credit limits.

Pros and cons

One of the primary advantages of using a credit card is that it allows you to borrow money and pay it back over time.

Credit cards also come with perks such as cashback, reward points, and travel miles.

However, carrying a balance on your credit card can lead to high-interest charges, and some credit cards come with an annual fee.

If you use your credit card regularly it may lead to a high credit utilization ratio – an indication of how much of your available credit you’re using – which may bring down your credit score.

Charge card vs credit card

Charge CardCredit Card
PaymentMust be paid in full every monthCan be paid in full or over time with interest
Credit limitNo pre-set spending limitPre-set credit limit
Interest RateNo interest charged if paid in fullInterest charged if balance not paid in full
RewardsMay offer rewards programsOften offer rewards programs
FeesAnnual fees are commonAnnual fees may apply, but not always
Credit HistoryTypically not reported to credit bureausReported to credit bureaus, affecting credit score
Late PaymentMay result in cancellation of cardMay result in late fees and damage to credit score
Note: Some financial institutions may use the terms “charge card” and “credit card” interchangeably or have different definitions for each term. This table represents the general differences between the two types of cards.

Payment terms

Unlike credit cards, charge cards require you to pay the full balance each month, and failure to do so can result in a late payment fee and interest charges.

With a credit card, you can pay the minimum monthly amount, which is usually 1-3% of the balance.

Spending limits

Since there is no preset spending limit for a charge card, credit issuers usually require a higher credit score and income to qualify for a charge card.

A typical credit card comes with a preset credit limit that you cannot exceed, and they also charge interest on any balance you carry over each month.

Interest rates

Interest rates on charge cards are typically higher than credit cards, ranging from 15-30% per annum. These high-interest rates mean that charge cards are best suited for consumers who can afford to pay off their balance in full each month.

Credit card interest rates are lower than those of charge cards, ranging from 10-25% per annum.

Credit score impact

The three credit bureaus—Equifax, Experian, and TransUnion—will receive information about your payment history from both credit card and charge card accounts. With responsible use, either card can help you develop your credit, but charge cards have a slightly different effect.

Charge cards have a natural tendency to affect variables like your history of timely payments and the duration of your credit history, but they have no impact on your credit usage.

As a charge card doesn’t have a fixed credit limit, calculating utilization is more challenging, hence scoring models often don’t take charge card utilization rates into account.

But, credit cards have an effect on all of the factors that go into determining your credit score, so it’s crucial to be aware of how much credit you’re using in comparison to how much you have available.


Numerous charge cards offer top-notch rewards and bonuses, especially for those interested in travel privileges (especially those issued by American Express).

Additionally, the broad spending options provided by many charge cards give tremendous opportunities for earning rewards. Yet, other charge cards can provide a flat cashback rate of 1.5 percent or a rewards program that is conditional on achieving specific payment requirements.

Despite this, many credit cards provide greater perks and better reward rates than charge cards, particularly for specific kinds of purchases. For instance, one of the best travel credit cards available today is the Chase Sapphire Reserve®.

For a $550 annual fee, you’ll receive a number of perks, such as access to over 1,300 airport lounges, up to $300 in annual statement credits on qualifying travel purchases, 10X points on Chase Ultimate Rewards dining purchases, 10X points on hotel stays and car rentals booked through Chase Ultimate Rewards, 10X points on Lyft rides (through March 2025), 5X points on air travel booked through Ultimate Rewards, and more.

Which is better: charge cards or credit cards?

The answer to whether a charge card or a credit card is better depends on your financial situation and spending habits. If you have a high credit score and income, and you can afford to pay off your balance in full each month, a charge card may be a good option for you.

However, if you need to borrow money and pay it back over time, a credit card may be a better choice.

It’s also important to consider the fees and perks associated with each card. If you value rewards points, cashback, or travel miles, a credit card may be a better option.

On the other hand, if you don’t want to pay an annual fee and want to avoid debt, a charge card may be a better choice.


What is the point of a charge card?

Charge cards can be purchased by businesses and sometimes by wealthy individuals. It is like using a credit card because there is nothing on your business card to charge your bill.

Is it better to use a charge card or credit card?

Credit card accounts offer the possibility of paying at least a small fee, but it could pose a problem if the interest rate increases.

Charge cards generally require paying off the balance each month, but when the card is not paying in its entirety, the bank might close your credit card and charge for the service fee.

What are the disadvantages of a charge card?

Disadvantages of charging cards Your credit score will also suffer if your bank does not pay for it when it’s reported. Remember that you have to pay interest on all your debts for the balance.

Is it harder to get a charge card or credit card?

Although charge cards can be purchased for people with less than excellent financials they often require an average score of at least good or excellent.

Because they assume you’ll pay a whole monthly bill and do not set you an exact predetermined spending limit or cap.

Is a charge card the same as a credit card?

There’s an important difference between a charge card and a credit card in terms of storing a balance.

Some credit card companies ask that their customers pay the total amount in full every month, whereas credit- card issuers say users have the option to keep the balance (although the fees increase).

Why use a charge card over a credit card?

The charge card has no annual fee and no predefined spending limit, which is due monthly. Charge cards don’t charge interest, whereas credit cards charge interest for paying just the maximum requirement of the bill each billing period.

If you have a limited credit history and want to build your credit record, you can also consider getting a secured credit card.