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

5 min read

Last Updated: December 19, 2024

Table of contents

Key Takeaways

A charge card requires you to pay off the full balance each month.
A credit card lets you carry a balance that you can pay off over time.
Both cards allow you to make purchases in person and online, and many offer rewards.

Some may use “charge card” and “credit card” interchangeably, but they’re not the same and have key differences. If you’re thinking of applying for one, it can help to know how they differ so you can choose the one best for you.

What’s a charge card?

Charge cards are much less common than they used to be. Some charge card issuers also offer credit cards as well, which tend to be more flexible over the long-term.

With a charge card, you can buy things on credit without paying interest—if you pay your balance in full every month. But if you can’t pay off your charge card in full each month, your card issuer may add a late fee and other penalties to your outstanding balance. If left unpaid, your charge card issuer may close your account to prevent you from making any more purchases on your card.

Compare charge cards vs. credit cards

Both charge cards and credit cards allow you to pay for items without using cash (unlike a checking account or debit card), but there’s one main difference—charge card issuers expect you to pay off your full charge card balance every month.

By contrast, a credit card issuer will allow you to carry a balance that you can pay off over time. If you only make the minimum payment on a credit card, you’ll accrue interest charges on the balance.

Charge Cards vs. Credit Cards

	Credit Cards	Charge Cards
Earn rewards	Yes	Yes
Carry a revolving balance	Yes	No
More commonly offered by card issuers	Yes	No
Can help build credit	Yes	Yes
Interest charged on purchases	Yes1	No
Credit utilization counted in credit scoring models	Yes	No

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Other ways charge cards and credit cards are different

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 will factor into your credit utilization ratio (the percentage of available credit in use).

A charge card usually doesn’t have a preset spending limit, according to the Federal Trade Commission (FTC). In some cases, you can charge as much as you want to your account—if you pay off your balance in full every month.

Another difference according to the FTC, is that charge cards often charge high annual fees in exchange for the benefits and rewards they offer. 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. Many credit card issuers offer options with no annual fee. Discover^® has no annual fee on any of our cards.

How are charge cards and credit cards the same?

Both cards allow you to make purchases in person and online, and both cards offer perks and benefits. In many cases, you’ll be able to earn rewards on your purchases.

Did you know?

Discover credit cards can offer perks, including cash back rewards on every purchase. You should look at what categories you spend the most in and compare card offers to find the best credit card for you.

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In addition to how you use them, both charge card issuers and credit card companies check your credit history before deciding whether to approve you for a new line of credit. Just like credit cards, charge cards with the best features are often offered to those 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.

You should look for charge cards with rewards that match your lifestyle. For example, if a charge card offers complimentary airport lounge access, ask yourself how often you’ll be able to take advantage of the perk. The same goes for any rewards you may earn on purchases—if your shopping habits don’t match the charge card’s reward categories, you may want to consider other forms of credit.

Charge cards vs. credit cards: Impact on your credit

Both charge cards and credit cards can impact your credit score, but in different ways.

Inquiries

When you apply for a charge card or a credit card, the card issuer will likely review your credit history, which may result in a hard inquiry. The effect of a hard inquiry on your credit is usually minor, but it’s still something to note.

Credit utilization ratio

Credit utilization looks at how much of your available credit you’re using and is a big factor in determining your credit scores if you have a credit card account.

Payment history

The biggest factor in calculating credit scores is payment history. On-time payments for charge cards and credit cards can help you build a good credit history. Your card issuer will inform the credit bureaus if you make any of your payments over 30 days late. Any late payments will appear on your credit report and could signal that you’re a credit risk. This can affect your credit scores, ability to get credit, and the interest rates on your credit lines.

Should you choose a credit card or a charge card?

If you can 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.

If you’re hoping to keep your interest costs low, applying for a traditional credit card and paying off the balance in full every month could be your best option.

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