Customer enters her PIN into a card reader as a store clerk assists her

What’s the Difference Between a Charge Card and a Credit Card?

Last Updated: March 24, 2022
4 min read

Key points:

  1. A charge card requires you to pay off your balance each month

  2. A credit card lets you carry a balance over time

  3. Both cards allow you to make purchases in person and online, and many offer rewards

Are you thinking about applying for a charge card? These days, charge cards are much less common than they used to be. Most credit issuers have switched to offering credit cards, which tend to be more flexible over the long-term. Today’s charge cards often include features that allow them to function like credit cards when necessary.

If you’re considering a charge card, it’s a good idea to understand the differences between a charge card and a credit card before making your decision. Both charge cards and credit cards allow you to pay for items without using cash, but there’s one key difference—charge card issuers expect you to pay off your balance in full every month, while credit card issuers allow you to carry a balance over time.

Here are some things to consider about charge cards vs. credit cards, including how to decide which option is best for you.

What’s a charge card?

With a charge card, you can purchase items on credit without paying interest—as long as you pay your balance in full every month.

What happens if you can’t pay off your charge card in full? Some charge card issuers add penalties and fees to any charge card account with an unpaid balance. Other issuers may allow you to convert your charge card to a credit card and pay interest on your balance—although you may need to make the conversion before you charge any purchases that you plan to pay off over time. In some cases, your charge card issuer may close your account and prevent you from charging any more purchases to your card.

Charge card vs. credit card: Differences and similarities

The main difference between a charge card vs. a credit card is that a credit card lets you carry a balance while a charge card does not—but that’s not the only feature that sets these two types of cards apart.

A credit card comes with a credit limit, which represents the total amount you can charge to the card. Any purchases you make against your credit limit can be factored into your credit utilization ratio.

A charge card, by contrast, does not have a preset spending limit. In some cases, you can charge as much as you want to your account—as long as you pay off your balance in full every month. In other cases, charge card issuers may place a spending limit on your account based on your income, spending history, and credit score.

Since charge cards don’t come with credit limits, the money you charge to your card is not always factored into your credit utilization ratio.

Both cards allow you to make purchases in person and online, and in many cases you’ll be able to earn rewards on your purchases. It’s also worth noting that both charge card and credit card issuers check your credit history before deciding whether to approve you for a new line of credit. The charge cards with the best features, similar to credit cards, are often reserved for people who have good or excellent credit scores.

Who can benefit from a charge card?

If you have already established a good or excellent credit score and are prepared to pay off your balance in full every month, you could benefit from a charge card. You’ll be able to take advantage of interest-free purchases, as well as any rewards that come with the card.

Charge cards may offer appealing rewards and perks—but often charge high annual fees in exchange for the benefits. Before applying for a charge card, make sure that any rewards you’ll earn from the card will offset the cost of the annual fee.

If a charge card offers complimentary airport lounge access, for example, ask yourself how often you’ll be able to take advantage of the perk. The same goes for any points, miles or cash back percentages you may earn on purchases—if your shopping habits don’t match the charge card’s reward categories.

Should you choose a credit card or a charge card?

If you are able to pay off your balance in full every month, you might consider adding a charge card to your wallet. However, if you find it difficult paying off your balance in full, a charge card may not be your best choice.

Many credit cards provide a grace period meaning that you will not be charged interest on purchases as long as you pay your balance in full and on time each month. If you’re hoping to keep your interest costs low, applying for a traditional credit card and paying off every balance in full could be your best option.

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