A woman using contactless payment with a credit card to pay at a restaurant.

What is a Charge Card?

6 min read

Published September 3, 2025

Table of contents

Key Takeaways

A charge card doesn’t have a set credit limit. Instead, you pay your balance in full each month.
Like traditional credit cards, charge cards affect your credit score as long as your activity is reported to a major credit bureau.
Your charge card balance won’t accrue interest charges, but late payment fees are typically very expensive.

You might think charge cards and credit cards are interchangeable. After all, a charge card looks just like a credit card. You can typically use a charge card to shop like you would with a credit card. But you make payments and manage your balance differently on a charge card. Charge card holders generally have to repay their card in full each month or risk late payment fees, according to the Federal Trade Commission.

As credit cards have increased in popularity, charge cards have become less common. Still, some banks and credit card issuers offer personal and business charge cards with unique perks. When you understand exactly how to manage a charge card, it can be a valuable addition to your wallet.

Definition of a charge card

Unlike a traditional credit card, a charge card isn’t technically a form of revolving credit.

A charge card is a payment tool and form of credit that doesn’t have a preset spending limit. Instead, the card issuer approves (or denies) each individual purchase. In turn, the charge cardmember repays the entire balance each billing cycle.

How charge cards work

Charge cards, unlike credit cards, generally don’t have a fixed spending limit. Each time you use your charge card, the card issuer determines whether to approve the transaction based on your spending history.

As you use your card, your balance grows. But at the end of each billing cycle—which is usually about a month—you have to repay the entire balance. Otherwise, your payment may be considered overdue.

Because you can’t carry a balance from month to month on a charge card, they don’t typically charge interest like a traditional credit card might. But if you can’t repay your entire balance at the end of the month, you’ll likely rack up significant late fees. The card issuer may even close your account if you can’t make your full payment after several months.

You have the flexibility to make expensive purchases with a charge card, so you typically need an excellent credit score to qualify.

Did you know?

You don’t need an excellent credit score to get credit. Even if your score is lower than you’d like, you may still qualify for a secured credit card. To open an account, you provide a refundable deposit. Secured credit cards are designed for people who are working to improve or establish credit scores.

Learn More

How charge cards affect your credit

As long as the charge card issuer reports your activity to at least one major credit bureau, your transactions should appear on your credit report. But charge cards don’t always have a straightforward impact on your credit score.

Payment history

Paying your charge card balance in full each month may help you build a positive credit history, which is a crucial component of your credit score. But beware of late payments.

You can’t make a minimum payment on your charge card, unlike a credit card. If you accrue a balance that you can’t repay all at once, you risk falling behind on payments, which can hurt your score.

Charge cards and credit utilization

Your credit utilization ratio is the sum of your outstanding balances compared to your overall available credit. Because charge cards don't provide access to a line of revolving credit with a credit limit, they generally don't affect your available credit.

Credit scoring models may handle charge cards differently when it comes to your credit utilization ratio. Newer scoring models generally don’t factor charge cards into your credit utilization at all. A high balance on a charge card shouldn’t hurt your credit score as long as you repay it at the end of the month.

Length of credit history

The more experience you have managing credit, the better. Both the average age of your credit accounts and the amount of time you’ve been managing credit affect the length of your credit history, according to the New York Department of Financial Services. If you close your charge card account, you may bring down your score by lowering the average age of your accounts.

New credit

When you apply for a charge card, the bank or lender typically requests a hard credit inquiry to evaluate your credit file. Like other hard credit checks, this may have a small negative effect on your credit score.

Pros and cons of charge cards

A charge card can be a useful tool for building your credit and making big purchases. But charge cards aren’t without disadvantages, especially if you tend to carry a balance.

Benefits of charge cards

No credit limit. You don’t have to worry about maxing out your charge card. But the financial institution may limit your spending power if you’ve overspent in the past.
Flexible spending. As long as you can repay your balance in full at the end of the month, you can make pricey purchases without hurting your credit score.
Rewards. Charge cards often earn rewards, like credit cards.
No interest. With a charge card, you generally don’t have to worry about interest charges.

Charge cards may have some drawbacks

Annual fees. Many charge cards have high annual fees.
High late penalties. If you can’t repay your balance at the end of the billing cycle, you may incur steep late fees that increase your total balance.
Credit score requirements. You typically need an excellent credit history to qualify for a charge card.
No minimum payments. As stated, you must pay your entire balance when your bill is due. Charge card issuers may consider partial payments late and charge you for the remaining balance.

The bottom line

If you’re used to carrying a balance on your credit card from month to month, adjusting to a charge card may be tricky. But if you always pay your balance in full and avoid overspending, then you may be able to manage a charge card without changing your habits. While a charge card may not be the best substitution for a credit card, adding one to your credit toolkit can help you build credit history and earn rewards.

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