Charge Card vs Credit Card: The Differences That Matter

The primary difference between a charge card vs credit card is that charge cards require you to pay your balance in full while credit cards let you carry a balance. Charge cards also have no preset spending limits; credit limits are standard for all credit cards. However, rewards programs are common with both credit cards and charge cards.

The five main differences between charge cards and credit cards are:

• Maximum spending limit: Charge cards come without preset spending limits while credit cards have a predetermined credit limit.
• Repayment terms: Charge cards require the entire card balance to be paid in full monthly, while credit cards can be paid off over a period of time with interest.
• Annual fees: Charge cards carry higher annual fees compared to most credit cards. However, some credit cards don’t have annual fees at all.
• Availability: There are more credit cards available compared to charge cards. American Express is the only issuer that offers both personal and business charge cards.
• Credit utilization: Because charge cards have no published credit limit, some lenders may consider the highest amount used as a maximum card limit in order to calculate your credit utilization ratio. This could mean a higher credit utilization ratio and a lower credit score.

Aside from the differences, rewards programs on charge cards and credit cards are similar. Consumers can earn rewards with charge cards like the American Express Platinum Card® and with credit cards like Chase Freedom Unlimited®. However, consumers who own a business may benefit more from a business charge card or credit card. Some of the best business credit cards offer robust introductory bonuses with ongoing rewards on business-related expenses.

Charge Card vs Credit Card at a Glance

When to Use Charge Cards

Charge cards are best for people who make large purchases and have the ability to pay off the balance in full every month. There are steep penalty charges for missing payments, including late fees up to $39 or more. In some cases, a penalty fee of up to 3% of the transaction may be assessed. It’s best to use your charge card when you know that you can pay off the balance each month.

Some instances when you should use a charge card are:

• To make large purchases: Charge cards allow for larger purchases because they have no preset spending limits.
• When you can afford to pay the balance monthly: The entire balance on a charge card must be paid in full each month, or you’ll be charged penalty fees.
• For rewards and travel perks: The best charge cards earn rewards that can be redeemed for travel and offer robust additional card features, including travel perks and insurances.

Because they have no preset spending limit, charge cards require good to excellent credit to qualify. It takes a personal credit score of at least 670 to qualify. However, charge cards also earn rewards like travel credits and bonus points that can be used for entertainment, shopping, and dining. Some of the best perks are geared toward consumers who travel frequently. Use your charge card to pay for travel tickets, ride-share fees, and hotel stays to get the most benefit.

When to Use Business Charge Cards

Business owners can use business charge cards to pay for expenses as well as manage employee spending by tracking employee cards, without a preset limit. Business charge cards, like the American Express Business Platinum Card®, allow owners to issue up to 99 employee cards. However, those cards charge a fee for each additional card. Employee charge cards are an excellent way to monitor employee expenses while keeping their spending under your control.

When to Use Credit Cards

Credit cards are best for consumers looking to make purchases with the option to pay off balances over a period of time instead. Although cardholders aren’t obligated to pay the entire balance immediately, they are required to pay the minimum balance each billing cycle. Credit cards charge annual percentage rates (APRs) on all balances that aren’t paid within a 20- to 25-day grace period.

Some instances when you should use a credit card are:

• For everyday purchases: Most credit cards offer credit limits up to $5,000 and are best used for financing everyday purchases, such as groceries and gas.
• To float expenses: Credit cards allow you to finance larger purchases and pay off your balance over time with interest.
• To earn cash back or points rewards: Some of the best credit cards offer cash back or point rewards in select spending categories, which can serve as discounts to save you money.

Consumers who don’t want to use cash or would like to earn additional rewards like travel rewards, without the need to pay it off immediately, should opt for a credit card. Most credit cards require a credit score of 640 or higher to qualify. If you have a credit score of less than 640, it’s likely you’ll need to provide a cash deposit for approval. While these kinds of cards offer fewer rewards, they are great tools for rebuilding your credit score.

When to Use Business Credit Cards

People who own a business can use a business credit card to pay for business-related expenses. The benefit of using a business card over a personal card is that it can help build business credit while keeping your personal charges separate. Although the personal credit score requirements are often higher for businesses, rewards programs on business credit cards tend to offer higher bonuses than personal credit cards.

How Charge Cards Work

Charge cards can be used as credit cards, but they must be paid off in full, monthly. Rather than receiving a credit limit from the bank, you’ll have no preset spending limit. This means you could make purchases without having to worry about hitting your credit limit. You’ll need a personal credit score of 670 or more to qualify. Some charge cards also include rewards programs that allow you to earn points that you can redeem for travel and entertainment.

American Express is the only major provider that offers charge cards. This means charge cards can only be used in locations that accept American Express. Once you use your card in-store or online, you must repay your entire balance monthly. If you know you can’t afford to meet this requirement, consider a 0% APR credit card. A no-interest credit card is a great way for those who can’t get a charge card to fund purchases.

How Credit Cards Work

Unlike charge cards, credit cards allow cardholders to pay off balances over time with interest as high as 26%, which will be calculated into your total monthly balance. If you decide to only make the minimum monthly payment, any unpaid balances will continue to accrue interest until fully repaid. After you pay down your account balance, the funds are available for use again, and the process starts over.

Similar to charge cards, some credit cards offer rewards that you can earn on travel, food, and everyday purchases like gas. You can redeem rewards in a number of ways, including travel tickets, exclusive entertainment experiences, and free travel upgrades. However, most cards have some restrictions on how you can earn and redeem rewards.

Charge Card vs Credit Card: Costs

When it comes to card terms, the biggest difference between charge card and credit card costs is their APRs. Credit cards have ongoing APRs that typically range from 14% to 26%. Charge cards, on the other hand, have no APR because you must repay the entire balance at the end of every month.

Charge Card Costs

You won’t pay interest with a charge card because you must repay your balance in full monthly. Failure to repay the balance will result in penalties that include late fees as high $39 and more, or up to 3% of the total transaction amount. Additionally, charge cards have annual fees that range from $95 to $550 and more.

The costs of charge cards are:

• APR: None, because the balance is due in full monthly
• Annual fee: $95 to $550 or more
• Late fees: $39 or higher, or up to 3% of the transaction in some cases

Charge cards that charge higher annual fees usually offer more robust rewards and additional card features. Some American Express charge cards allow cardholders to pay over a period of 60 days with interest. However, this feature is not offered on all American Express cards and is usually limited to those cardholders American Express qualifies for the program.

Credit Card Costs

Credit cards usually carry ongoing APRs between 12% and 26% with annual fees as high as $450 or more. Similar to charge cards, credit cards with higher annual fees typically offer a variety of rewards and some of the best card benefits. You can also avoid paying interest on a credit card by paying off the balance in full.

The costs for credit cards include:

• APR: 12% to 26%
• Annual fee: $0 to $550 or more
• Late fees: $35 or higher

Some credit cards, like Chase Freedom Unlimited®, offer no annual fees and an introductory 0% APR period as long as 15 months. If you can’t qualify for a charge card, you can use a no-interest credit card to carry a balance and save money on finance charges. However, cardholders who only pay the minimum balance will find that carrying a balance on a credit card can add up even without an annual fee.

Charge Card vs Credit Card: Rewards

Some of the best charge cards and credit cards offer cash back or points rewards programs on everyday purchases. Cardholders get up to 5% cash back or 5x points for making purchases in qualified spending categories. These rewards can serve as a discount that can help you save money while also earning future rewards, deals, and discounts.

Charge Card Rewards

Charge cards are premium cards with high annual fees, but they also tend to offer the top bonus rewards and luxury card benefits. Charge card rewards come in two ways: introductory bonuses and ongoing rewards. Ongoing rewards accumulate as you make purchases, while introductory rewards are provided as sign-up bonuses for meeting initial spending requirements.

The types of rewards some charge cards offer are:

• Introductory rewards: Introductory bonuses could be worth as much as $500 or more after meeting spending requirements in the first few months.
• Ongoing rewards: Ongoing rewards can be as high as 5x points for each dollar spent on travel-related purchases.

The difference between charge card vs credit card rewards is often in the introductory bonus. Points-based introductory offers can be as much as 10,000 to 20,000 points higher than what credit cards offer.

Credit Card Rewards

Like charge cards, credit card rewards cards offer both introductory rewards and ongoing rewards. Although these rewards are sometimes higher than charge cards, they are usually lower on average than charge cards. Most charge card rewards come in the form of points, while credit cards offer a variety of both cash back and points-based cards.

The types of rewards some credit cards offer are:

• Introductory rewards: Cash back sign-up bonuses for credit cards can be as much as $200 or more after meeting spending requirements.
• Ongoing rewards: Ongoing rewards for credit cards can be as much as 5% cash back on purchases. You can also get top rewards in category spending (dining, groceries, gas) by tracking your purchases and spending in those categories.

Consumers can use ongoing cash-back rewards to essentially act as discounts on everyday purchases. If you’re a business owner who wants to maximize your rewards, it’s best to choose a business credit card that offers rewards in the spending categories you use the most, like office supplies and travel.

Charge Card vs Credit Card: Repayment Terms

The primary difference between charge card and credit card terms is the repayment requirements. A charge card is required to be paid in full each month or else you will be penalized with a late fee. Alternatively, while credit cards are expected to be repaid monthly, they only require a monthly minimum payment. This means you can carry a balance to the next billing cycle.

Charge Card Repayment Terms

With a charge card, you’re required to repay your entire balance at the end of each billing cycle (every 25 to 30 days) and any unpaid balances will result in a late fee. Since the balance is due in full, it’s important to know if you can afford to pay off your card every month before applying for a charge card.

Some American Express charge cards have a Pay Over Time feature that allows you to pay your balance over an extended period of time with interest. The Pay Over Time Direct feature automatically adds purchases of $100 or more to your balance to be paid later with interest. The Pay Over Time Select feature allows you to choose which purchases to pay later. This feature is only available to cardholders American Express qualifies.

Credit Card Repayment Terms

Credit cards have a revolving credit line that you’re expected to repay each month. However, credit cards are typically a more flexible method of financing purchases because you can float balances to the following billing cycle. Credit card issuers only require you to make a monthly minimum payment, but any unpaid balances will accrue interest. Minimum monthly payment amounts usually range from 2% to 4% of the outstanding balance.

Credit cards are a great way to finance large purchases and carry a balance to pay off later. Some of the best credit cards offer introductory 0% APR for up to 21 months. No-interest credit cards can save you money on interest charges and balance transfers.

Charge Card vs Credit Card: Qualifications

Both charge cards and credit cards are best for owners with strong personal credit scores. However, charge cards require a credit score of at least 670 while credit cards require a score of at least 640. If you’re applying for a business charge card or credit card, you’ll need to provide a personal guarantee, which means you’ll become personally liable if the business fails to repay its debt.

Charge Card Qualifications

A charge card is an excellent option if you have a high income. Typically, charge card providers require a good to excellent credit score of at least 670. What’s more, some charge cards, like the invitation-only American Express Centurion card, also require a minimum of $350,000 per year in combined American Express card spending to qualify. If your credit score is less than 670, you should choose a credit card instead.

Business Charge Card Qualifications

For business owners who want to qualify for a business charge card, it’s best to have a steady cash flow to meet the monthly repayment schedule. Most charge card issuers require a personal guarantee. This means that you, as the business owner, will be held personally liable if your company can’t repay its outstanding account balances. It also means that in some cases, you can build your personal credit along with your business credit.

Credit Card Qualifications

The difference between charge card and credit card qualification is often the credit score. Unlike charge cards, credit cards require a score of at least 640 to qualify. People who have poor credit may still qualify for secured credit cards. Those cards only require a credit score of 550 or higher, but you will need a cash deposit between $49 and $500 to open one. Credit limits on secured credit cards will be equal to your cash deposit.

Business Credit Card Qualifications

Business credit cards can be a better financing option if your business brings in little-to-no revenue. Additionally, some of the best small business credit cards require personal credit scores of at least 670. You’ll be asked to include both your personal and business income information. Disclosing that you have $0 in revenue won’t necessarily keep you from being approved.

Charge Card vs Credit Card: Ease of Use

Credit cards are similar to charge cards in use and they also allow you to finance purchases without needing cash. There are two major differences when comparing a charge card vs credit card for consumers. The first is that charge cards are required to be paid in full monthly. The second is that charge cards have no preset spending limit. Your income level and spending habits will determine which card is easier to use.

Charge Card Ease of Use

Once you’re approved for a charge card and receive your card in the mail, you can start using your card right away. To use your charge card, you can swipe it at stores that accept electronic payments or by entering your card information online. At the end of the month, you will receive your bill and be required to repay your entire balance.

Credit Card Ease of Use

Similar to charge cards, you can start using your credit card immediately after receiving it in the mail. You can use your credit card in stores that take electronic payments or by entering your card information online. Since it’s a revolving credit line, the amount you use will be available again once you repay the balance.

Charge Card vs Credit Card: How to Apply

Applying for a charge card or a credit card is as easy as providing your personal information. You will typically receive an approval decision within 24 hours and your card within seven to 10 days. Business owners can also get a business credit card or business charge card online in a matter of minutes. You can shop and compare the best business charge cards and credit cards through our credit card marketplace.

Pros & Cons of Charge Cards

Charge cards are a great way to make large purchases without maxing out a limit and avoid interest charges. However, they do require those same amounts to be paid off on the next statement.

Pros of Charge Cards

• No preset spending limit: Charge cards have no preset spending limits and you can make purchases without the worry of hitting a credit limit.
• No interest charges: People who can afford to pay their account balance off every month won’t pay interest charges or fees from unpaid balances.
• Earn rewards and card perks: Some of the best charge cards American Express provides offer points rewards with luxury travel benefits worth thousands of dollars per year.

Cons of Charge Cards

• Balance is due in full: Unpaid charge card balances can result in late fees of $39 or more and a percentage up to 3% in some cases. Only apply for a charge card if you can afford to pay off the account balance every month.
• No special financing periods: Because charge cards aren’t designed to carry balances, they don’t offer introductory 0% APR periods. Consumers who need to finance large purchases over a period of time should consider a no-interest credit card instead.
• Requires excellent credit: American Express requires consumers have a credit score of at least 670 to qualify. In comparison, credit card providers typically only require credit scores of at least 640 to qualify.

Pros & Cons of Credit Cards

Credit cards are great for people without as much available funds and who need to finance purchases. However, carrying a credit card balance can lead to large interest charges later.

Pros of Credit Cards

• Finance your purchases: Credit cards allow consumers to make everyday purchases and pay off the balance over time. You’re not required to pay off the entire balance—only the minimum payment.
• Earn rewards: The best credit cards offer cash back or points-based rewards on travel and everyday purchases like gas and dining. You can earn up to 5% on category purchases with a cash-back credit card.
• Fewer qualification requirements: People who have less than excellent credit scores can qualify for a credit card. You’ll need a personal credit score of at least 640 in most cases, but some credit cards, like credit cards for bad credit, have even fewer qualification requirements.

Cons of Credit Cards

• Preset spending limits: Credit cards have credit limits that won’t allow you to make purchases once you’ve reached it. However, you can reuse the balance once it’s repaid.
• Potential interest charges: Since credit cards allow cardholders to carry balances, these cards come with interest rates that are calculated daily and will increase the total balance you pay later.
• Larger credit impact: Your credit card usage impacts your credit utilization ratio. A good rule of thumb is to keep your credit utilization ratio under 30%. Ratios greater than 30% may hurt your credit score.

Charge Card vs Credit Card Frequently Asked Questions (FAQs)

We covered a lot of different information about a charge card vs credit card and which one is best. Some questions are asked more often than others, and we address those here. If you have any other questions, please leave a comment below and we will provide an answer.

What is the difference between credit cards & charge cards?

Charge cards have no preset spending limit and carry no interest. While credit cards allow you to carry a balance and float expenses to the next billing cycle, charge cards do not. Charge cards also don’t allow you to carry a balance because the balance is required to be paid in full monthly.

Do charge cards help your credit score?

Since charge cards have no preset spending limits, there is no visible credit limit that’s factored into your credit utilization score. So, your charge card payment history is what actually impacts your credit score. This means making regular and timely payments to your charge card can improve your credit score.

Which is better, a charge card or a credit card?

Charge cards are best for people who can afford to pay off their entire account balance at the end of the month. Credit cards are best if you need to finance large purchases or carry a balance. Charge cards have additional benefits, such as no preset spending limit and premium travel benefits.

Bottom Line

Charge cards are best for consumers who know they can afford to pay off their entire balance every month. If you know you’ll need to carry a balance or want to pay your statement over time, a credit card would be a better option. However, any unpaid credit card balances will accrue interest until fully repaid.