Though both offer the convenience of buying something now and paying for it later, there’s definitely a difference between a charge card and a credit card when the monthly bill arrives. With a credit card, you can either pay the full amount owed or make a minimum payment and carry the balance forward. With a charge card, no matter how much you owe, you’re expected to pay the monthly bill in full.
That’s not the only thing that sets these cards apart. The two also vary in their accessibility, flexibility, spending limits, and costs. If you’re wondering if a charge card vs. a credit card is a better fit for you, read on for information that could help you understand and compare their key differences.
How Charge Cards Work
In some ways, a charge card is much like a regular credit card. When you use it to make a purchase, you’re borrowing money from the card issuer. And when you pay your bill, you’re paying the card issuer back.
But there are several things about the way charge cards work that make them very different from traditional credit cards. And because of the way they work, there are benefits and risks of charge cards to consider.
As mentioned above, a charge card holder’s obligation to pay the bill in full each month is probably the most important distinction. Because you don’t have the option of carrying forward a balance, you won’t pay any interest. But if you don’t pay the balance in full by the due date, you could be subject to a late fee and restrictions on your future card use.
Another thing that makes a charge card unique is that there’s no pre-set credit limit. This offers charge card holders some added flexibility, but it doesn’t mean you can go out and spend as much as you want any time you want — even if you’ve stayed current with your charge card payments.
A transaction still may be declined if it exceeds the amount the card issuer determines you can manage based on your spending habits, account history, credit record, and other financial factors. To avoid any confusion, card holders can contact their charge card issuer before making a major purchase to ask if the amount will be approved.
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How Credit Cards Work
Because they’re more common, you may be more familiar with how credit cards work than you are with charge cards. With a traditional credit card, card holders are given a pre-set credit limit that’s based on their income, debt-to-income ratio, credit history, and other factors. Once your account application is approved and you receive a card with a unique credit card number, you can use your card as much or as little as you like — as long as you stay within that limit.
Each month when you receive your billing statement, you can decide if you want to repay the full amount you owe or make a partial payment, but you must make at least the minimum payment that’s due. And if you carry forward a balance, you can be charged interest on that amount. (Similar to your spending limit, interest rates are typically based on a card holder’s creditworthiness.)
A credit card is classified as “revolving credit” because there’s no set date for when all the money you’ve borrowed must be repaid. As long as you make at least your minimum payments on time and stay within your credit limit, the account remains open, and you can use the available credit over and over again.
Differences Between a Charge Card and Credit Card
Here’s a side-by-side look at some key differences between charge cards and credit cards:
| Charge Card vs. Credit Card | |
|---|---|
| Charge Cards | Credit Cards |
| Full payment required every billing cycle | Can carry a balance, but must make minimum monthly payment |
| Can be difficult to find and qualify for | Many options available, even for those with not-so-great credit |
| Accepted by most U.S. vendors (but less so overseas) | Widely accepted in the U.S. and worldwide |
| No interest charged, but can expect a high annual fee | May avoid annual fee, but interest accrues on unpaid balance |
| Known for prestigious rewards programs | Many cards offer rewards, often without an annual fee |
| No hard spending limit | Hard pre-set spending limit |
Payment Obligations
With a charge card, you’re required to pay what you owe in full when you receive your monthly billing statement. With a credit card, on the other hand, you can make a full or partial payment, but you’re only required to make a minimum monthly payment.
Even if you’re waiting for a refund that hasn’t yet shown up as a credit on your statement, you’ll be expected to pay the full amount of your charge card bill. With a credit card refund, you’ll just have to make sure you pay at least the minimum amount on your current bill.
Availability
If you’re looking for a new card, you’ll find there are far more credit cards available than true charge cards these days. Even American Express, the only major card issuer that still offers charge cards, has gone with a more hybrid approach.
American Express still offers cards that don’t have a pre-set spending limit. But those cards now come with a feature that — for a fixed fee — allows a card holder to split up eligible large purchases into monthly installments.
There also are some fuel cards, typically geared toward businesses, that are true charge cards.
Credit cards also are generally easier to qualify for than the charge cards that are available. Even if you have a poor or limited credit history, you may be able to find a secured or unsecured credit card that suits your needs.
Acceptance
Whether you shop local most of the time or hope to use your card as you travel the world, you may want to look at the acceptance rates of charge cards vs. credit cards.
Your card may not do you much good if you can’t use it where you like. American Express says its cards can now be accepted by 99% of the vendors in the U.S. that accept credit cards. If you aren’t sure your favorite local boutique or grocer will accept a particular card, you may want to ask or look for the card’s network logo in the store window.
If you plan to use your card overseas, you may want to check ahead on the acceptance rate in that country and also find out if you’ll have to pay a foreign transaction fee. Charge cards tend to have a lower rate of acceptance overseas.
Costs
If you’re trying to decide between a charge card vs. a credit card, how much a credit card costs compared to a charge card — both in interest charges and fees — could be an important consideration.
Interest
You can find a full explanation of how your card issuer calculates interest in your card’s terms and conditions. But as noted above, if you carry forward a balance on your credit card, you can expect to pay interest on the outstanding amount.
According to the Federal Reserve, the average credit card’s annual percentage rate (APR) is currently around 16%. Your rate may be higher or lower, depending on your creditworthiness.
You may not have just one interest rate associated with your account either. Your account may have a different APR for purchases, for example, than for credit card cash advances or balance transfers. Or you might have a lower, introductory APR for the first few months after you get a new card. If, over time, you miss payments or make late payments, the card issuer also could decide to raise your APR.
Because you don’t carry a balance with a charge card, you don’t pay interest. But if you pay off your credit card balance by the due date every month, you also won’t have to worry about accruing interest on a credit card account.
Annual Fees
You won’t pay interest with a charge card, but you may end up paying a significant annual fee just to own the card. (The annual membership fee for an American Express Platinum Card, for example, is now $695.)
Some credit cards also charge annual fees, but you can find many that don’t.
Rewards and Perks
You may decide it’s worth paying a higher annual fee to enjoy the extra benefits some charge cards offer. American Express, for example, has a reputation for offering its card holders prestigious perks, including travel and retail purchase protections, early access to tickets for concerts and other entertainment events, and special offers from partner merchants.
However, plenty of credit cards also come with special benefits, such as cash-back rewards, travel rewards, retail discounts, or even cryptocurrency rewards. And many of those card issuers don’t charge an annual fee.
Both charge cards and credit card issuers also occasionally offer generous welcome or sign-up bonuses to new card holders, so that might be another benefit worth looking at when you’re searching for a new card.
Before you sign up for any card to get the perks it offers, though, it can be a good idea to step back and assess whether it’s worth paying a higher annual fee (or accruing interest on a balance you can’t pay off) to reap those rewards.
Spending Limit
With a credit card vs. a charge card, you’ll know exactly how much you can spend, because your credit card will come with a pre-set limit. You can go online or use an app to check your credit card account at any time to see how much available credit you have.
Charge cards don’t have hard spending limits. But that doesn’t necessarily mean you can use your card to buy a car or take a trip around the world. Your card issuer may decline a charge if you’re spending more than it thinks you can afford.
How Card Choice Can Impact Your Credit Score
When it comes to what a charge vs. credit card can do for (or to) your credit score, there are few things you should know.
Inquiries
Whether you’re applying for a charge card or credit card, you can expect the card company to run a hard inquiry on your credit. This could temporarily lower your credit score, but only by a few points.
Payments
Whether you use a charge card or a credit card, paying your monthly bill on time is critical to building and maintaining a good credit record.
Payment history makes up 35% of your FICO credit score, so consistency is key. If your payment is 30 days or more past due and your card issuer reports it to the credit bureaus, that negative news could remain on your credit report for up to seven years. And it could come back to haunt you when you try to borrow money to buy a car or house.
Utilization
Credit utilization (the percentage of your available credit that you’re currently using) makes up 30% of your FICO score, so it’s important to keep your credit card balances well under the assigned limit.
To maintain or boost your credit score, the general rule is that you should try not to exceed a 30% credit card utilization rate. If you’re using up a big chunk of the pre-set limit on your credit card, it could have a negative effect on your score.
Because charge cards don’t have a pre-set credit limit, it can be difficult to determine if a card holder is at risk of overspending — so neither FICO or VantageScore include charge card information when calculating a person’s utilization rate.
This can have both pros and cons for charge card holders. The advantage, of course, is that you don’t have to worry about negative consequences for your credit score if you spend a lot in one month using your charge card. On the flip side, though, if you have a large amount of available credit that you aren’t using, it won’t do anything to help your score.
Choosing Between Credit Cards and Charge Cards
Deciding whether to apply for a credit card vs. a charge card may come down to evaluating the benefits you’re hoping to get from the card and assessing your own spending behavior. Here are some questions you might want to ask:
• Does the card offer unique or prestigious perks you think you’ll use?
• If there’s a high annual fee for the card, does it fit your budget and are the card’s perks worth the cost?
• Do you have enough money, discipline, and organization to ensure your bill is paid in full every month? Or could there be times when you’ll want to make a partial or minimum payment and carry forward a balance?
• Is your credit score good or excellent? If not, you may have more options and a better chance of qualifying if you apply for a credit card instead of a charge card.
• If you think you’ll pay off your card’s balance every month, would a credit card still be a better fit because of the rewards, low or no fees, and wider acceptance from vendors?
Also keep in mind that you don’t necessarily have to choose. In fact, you could benefit from owning both a charge card and a credit card. You may find there are reasons to have both types of cards in your wallet.
Recommended: Charge Cards Advantages and Disadvantages
The Takeaway
The terms charge card and credit card are often used interchangeably, but they are not the same thing. A charge card must be paid off every month, so there’s no interest to worry about —but there may be a high annual fee to pay. A credit card allows the user to make a minimum monthly payment and carry forward a balance, but the interest on that balance can add up quickly.
Each individual user must decide which is the better fit for their needs. And a card’s benefits vs. its costs may be a deciding factor. With a new SoFi credit card, you may be eligible to earn 2% unlimited cash back when you redeem it to save, invest, or pay down an eligible SoFi loan. And if you choose, you can redeem that cash back directly into crypto with your SoFi Active Invest account. Another perk: If you make 12 monthly on-time payments of at least the minimum payment due, SoFi will lower your APR by 1%.
Want to apply for a new card with rewards that work for you? Find out what a SoFi credit card has to offer.
Frequently Asked Questions
Is a credit card easier to get than a charge card?
Because these days there are more companies issuing credit cards, it may be easier to find one that suits your needs and has qualifications you can meet — even if you have a poor or limited credit history. There are very few charge cards available anymore.
Does a charge card build credit better than a credit card?
Both a credit card and a charge card can help or hurt your credit score, depending on how you use it.
When do credit cards charge interest?
Most credit cards come with a grace period, which means the credit card issuer won’t charge you interest on purchases if you pay your entire balance by the due date each month. If you fail to pay the entire amount on your statement balance, however, or if you make your payment after the due date, interest charges will likely appear on your next monthly statement.
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