Credit Card vs. Charge Card: What's the Difference?

by Christy Bieber | Nov. 7, 2019

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Credit cards and charge cards both let you buy things now and pay for them later, but they work very differently. Find out their key differences here. 

Credit cards and charge cards are both used to pay for purchases on credit by swiping a card. The main difference is that charge cards need to be paid off in full every month.

Young woman looking at a tablet with a credit card in hand.

Image source: Getty Images

Although credit cards and charge cards look the same, give rewards for spending, and provide similar protection in case of fraudulent purchases, they actually are very different in important ways. Key differences between credit cards and charge cards include:

  • Payment requirements: Credit card issuers allow you to make minimum payments equal to a small percentage of the amount you owe. Charge cards require you to pay your balance in full. However, both charge card issuers and credit card issuers typically charge fees for late payments. 
  • The amount of credit available: Credit cards usually have preset spending limits, while charge cards provide more flexibility in terms of how much you can charge. 
  • The effect on your credit score: The amount of available credit you use on a credit card is a key factor in determining your credit score. This can't be calculated with a charge card as you don't have a credit limit.
  • The availability of credit cards versus charge cards: American Express is the only major credit card issuer offering charge cards, while many different card issuers make credit cards available. 

Understanding these key differences between charge cards versus credit cards is essential when you're choosing what cards you want to use.

How much credit is available on charge cards versus credit cards? 

When you're approved for a credit card, the card issuer tells you how much credit you have available to you. For example, you may have a $5,000 credit limit or a $10,000 credit limit depending on credit and income. If you exceed this limit, your card may be declined and/or your card issuer might charge you an over-the-limit fee.

If you get a charge card, though, you won't have a preset credit limit. This provides you much more flexibility in terms of the amount you can spend. You can't necessarily charge an unlimited amount, though -- your history as a customer, your income, and your credit affect what you can charge. However, card issuers approve or decline transactions on a case-by-case basis, and unless you've had many recent problems with responsible borrowing, chances are good that any transactions you're trying to make will be approved.

How do charge cards affect your credit score?

Credit utilization ratio is the second most important factor in determining your credit score after your payment history. Your utilization ratio is calculated by dividing credit used by the credit available to you and you should aim to keep it below 30%. If you have a $5,000 credit line and have made $1,000 in charges, your utilization ratio would be $1,000 / $5,000 -- or 20%. 

With a charge card, you have no credit limit, and so your utilization ratio cannot be calculated. Your record of payments will still be reported to the credit reporting agencies, but you don't have to worry that making large purchases on a charge card will hurt your credit score. 

If you routinely charge very expensive items, a charge card could be better than a credit card for this reason alone. Even if you pay off the credit card with the large purchase in full, the card issuer may still report you as carrying a balance, depending on when your payment is made. This could inadvertently lower your credit score but won't be an issue if you use a charge card. 

Where can you get a charge card versus a credit card?

Charge cards are not widely available. American Express is currently the only major credit card issuer that offers charge cards -- so you'll have a very limited number of choices when it comes to which card to get. American Express also typically limits the availability of charge cards to people with good or excellent credit, and so getting a charge card may not be an option if you don't have the requisite credit score.

Credit cards are very different in this respect. There is an abundance of cards available on the market from a wide variety of credit card issuers, so you have your pick card companies. And there are even cards available for people with bad credit, so you are much more likely to find a suitable card, even if you aren't seen as an ideal credit card customer.

What are the repayment rules for charge cards versus credit cards?

Both charge cards and credit cards send you a monthly bill if you are carrying a balance. But although credit card issuers will allow you to pay just a small minimum payment each month, charge card balances have to be paid off in full. 

With charge cards, you cannot get yourself into debt -- which is a great thing if you want a card that provides fraud protection and the chance to earn rewards but don't want to risk getting into a situation in which you must pay interest. Unfortunately, because you have to pay off the card in full each month, there is a lot less flexibility with charge cards in terms of how you finance your purchases. 

Both charge cards and credit cards typically do charge late fees if you don't pay when the bill comes due. And both will report late payments to the credit reporting agencies, so your credit could be damaged if you don't comply with repayment terms. 

Is a charge card or a credit card right for you?

When deciding between a credit card or a charge card, consider whether you want the broadest choice of cards and would prefer flexibility in terms of how you pay your bill, or whether you'd rather not have a preset spending limit and want to pay off your balance in full each month. By evaluating these different features of credit cards versus charge cards, you can decide which is right for you. 

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