Charge Card Vs. Credit Card: 7 Biggest Differences

The average credit card interest rate is pushing 20%. 

This makes borrowing expensive, even if you’re just making everyday purchases. 

But what if there was a card that offered the perks and cashback of a credit card without the high-interest rates?

Meet charge cards.

Charge cards let you spend without limits and avoid interest.

Think it sounds too good to be true? 

In this article, I’ll explain the benefits of a charge card vs credit card. I’ll also share with you how to decide which is best for your financial needs. 

What is a Charge Card? 

A charge card is a payment card that has no pre-set spending limit. 

What sets charge cards apart from credit cards or debit cards is that you must pay your balance in full by the end of every billing cycle. 

So, for example, if you spend $1,000, you have to pay back the entire $1,000 by the end of that billing cycle. There are no options to pay a minimum or let the balance carry over. 

A benefit of not carrying a balance from month to month is avoiding paying interest! 

Also, like many credit cards, charge cards often come with travel points, cashback, and exclusive member perks. 

How Does a Charge Card Work? 

Here’s a general overview of how a charge card works:

1. First, you’ll have to select the card that’s best for you. You can check to see if your current bank has a charge card. Otherwise, credit card providers like American Express and Capital One offer charge cards.

2. Most providers will let you apply online through their websites. You’ll typically have to provide personal information such as your full name, address, date of birth, annual income, and Social Security number (SSN).

3. Once you’ve submitted an application, the provider will run a hard credit check. This is similar to when you apply for a credit card. 

4. Once approved, wait for your new charge card to arrive in the mail, and you can start shopping right away! 

Consumers should also be aware that ‘no pre-set spending limit’ doesn’t mean you can spend an unlimited amount. 

Charge card companies reserve the right to decline purchases if a user seems to be going off track from their usual spending habits and account history. 

Biggest Differences Between a Charge Card Vs Credit Card

Here are the major differences I noticed between a charge card vs credit card.

1 – Spending Limits

When you get approved for a credit card, the credit card company will give you a pre-set spending limit based on factors like your credit history and income. 

If you reach this limit, you can contact your credit card provider, and they may allow you to spend a little bit more, but it often comes with high interest and hefty fees.

With charge cards, there are no spending limits. So, you have extra freedom when making large purchases. 

However, some lenders might still limit your transaction amount if they think your purchase is too expensive or more than you can realistically pay back. 

If you need help fixing your credit, check out our comparison of Credit Saint vs Lexington Law, or see if working with the best tradeline companies could be the right credit repair solution for you. 

Meanwhile, learn how to budget for non recurring expenses so you can be prepared for unexpected costs going forward. 

If you’re looking for a low-tech, hands-on budgeting method, learn about cash envelope categories. And if you need to boost your savings fast, the 60/30/10 rule budget can help.

2 – Payments

Another difference is that you must pay off a charge card’s balance every billing cycle.  

If you don’t pay off your charge card’s balance in full by the end of the billing cycle, you will likely be charged late fees, and the lender may even suspend your account. 

This differs from credit cards which let consumers pay a minimum monthly installment and carry the remaining balance to the following month, plus interest. 

A credit card’s flexibility can help spread payments across several months, so you can ease the burden of paying off larger purchases.

But remember that you’ll have to pay interest on any revolving balance, and this can lead to more debt as you’ll end up paying more than the original purchase price. 

See how much you could save by learning how to cancel all subscriptions on your debit card or credit card. 

3 – Annual Fees

With credit cards, there are plenty of options for cards with no annual fees. In other words, they aren’t necessarily expensive to have. 

The same cannot be said for charge cards. 

Many charge cards cost upwards of $100 per year. And some, like the American Express Platinum card, have an annual fee of $695. So it’s quite a costly option.

4 – Late Fees

It’s much easier to avoid late fees with a credit card. 

This is because you only have to make a minimum payment instead of paying the entire balance.

With charge cards, if you fail to pay your balance in full by the end of the billing cycle, you can expect late fees. And some lenders may even lock your account until the balance is paid. 

Now, if you fail to make the minimum payment with a credit card, you can also expect late fees, but it’s unlikely your account will be suspended. 

5 – Interest

Most charge cards don’t charge interest. 

This is because you’re paying the entire balance every billing cycle. So, there would be nothing to charge interest on.  

The advantage of this is that you’ll never pay more than you borrowed.

Similarly, if you settle your balance every month, credit cards also won’t charge interest.

Again, if there’s no balance to charge interest on, then you have nothing to worry about it. You only pay interest when you carry your balance over to the following billing cycle. 

Currently, the average credit card interest rate is sitting at around 20%. However, the interest rates of some credit cards can go above 30%, so this is something to be careful of.

6 – Credit Score Impact 

When you apply for a charge card and credit card, lenders will run a hard credit check. 

This lowers your credit score. But this is only temporary, and if you make payments on time, you’ll build your score back up in no time.

The primary difference between a charge card vs credit card occurs when factoring in credit utilization.

Credit utilization compares your available credit to your current balance. 

For instance, if you have a credit card limit of $5,000 and use $500, your credit utilization is 10%. 

Many sources recommend keeping your credit utilization below 30% to keep your credit score in the green. 

The problem is that charge cards don’t have a predefined spending limit. This makes it hard for credit agencies to determine your credit utilization. 

For this reason, popular scoring models like FICO and VantageScore don’t usually factor in charge cards when calculating your credit utilization.

7 – Card Issuers Available 

If you search for charge cards to sign up for, you’ll notice there are fewer options available compared to credit cards. 

This is because only a handful of card issuers offer charge cards. 

With credit cards, you’ll find hundreds of choices tailored around the various types of customers. For example, there are credit cards specifically for students, business owners, anyone with bad credit, and more!

How to Choose Between a Charge Card Vs Credit Card

Choosing between a charge card vs credit card will largely depend on your financial situation.

If you like to stick to a budget and you’re looking for a card with no limits or interest, then charge cards are the better option. 

They also often come with travel perks and other rewards. 

On the other hand, credit cards have more flexibility as you can spread payments across multiple billing cycles. 

The fees are typically less, too. So if you’re not willing to pay upwards of $100 or more, then credit cards are more practical.

Commonly Asked Questions About Charge Card Vs Credit Card

Charge Card Vs Credit Card Vs Debit Card?

A charge card allows you to buy products and pay them off in full at the end of the billing cycle. With credit cards, you only have to make a minimum monthly payment. And a debit card lets you spend the money you already have in your bank account.

Is It Better to Use a Charge Card or Credit Card?

Using a charge card or credit card will depend on your needs. Charge cards allow you to stick to a budget easier because you cannot carry a balance over. However, credit cards offer more flexibility as you can pay for things over multiple months (usually with interest).

What is the Point of Having a Charge Card?

Charge cards let consumers enjoy the perks of credit cards without having to worry about paying interest or falling into cycles of debt. Also, with a charge card, there’s the potential to make bigger purchases on one card. This is because there is no pre-set spending limit, and you must pay the balance off every billing cycle. 

Is it Easier to Get a Charge Card or Credit Card?

There are more options for credit cards, so it is typically easier to get a credit card vs charge card. Plus, there are credit cards available for people with bad credit that are usually easier to qualify for. 

What are the Disadvantages of Charge Cards?

The main disadvantage of a charge card is the timeframe you have to pay it back. Charge cards require you to settle your account every billing cycle, so there’s not much flexibility. Also, charge cards usually have higher annual fees compared to most credit cards. 

Charge Card Vs Credit Card Amex?

Amex offers both charge cards and credit cards. Both options come with various perks, like travel rewards and cashback. The best choice for you will depend on your financial situation and goals. 

Is American Express a Charge Card?

American Express offers both charge cards and credit cards for consumers. They currently offer two charge card options, the American Express Gold card, and the American Express Platinum card. 

Best Charge Card?

American Express has one of the best charge cards. Their charge cards come with access to their 24/7 concierge alongside travel rewards, zero interest, and unlimited spending.

Is Amex Platinum a Charge Card? 

The Amex Platinum is a hybrid between a charge card and a credit card. There’s no pre-set spending limit, but you can also carry over an approved balance to the next billing cycle, providing some flexibility. 

Does Capital One Offer a Charge Card?

Capital One offers their Spark 2% Cash Plus charge card that gives you up to $1,000 cashback. The annual fee is $150, but there are no spending limits or interest rates. Your card balance is due at the end of every month.