Charge cards and credit cards are not the same. Each type of card has its own unique features and impacts your credit score in different ways.

A charge card is a specific type of credit card that requires you to pay the entire balance in full every month. Since you are not allowed to carry a balance from month to month, charge cards do not have interest rates or preset credit limits. Instead, charge card spending limits are dynamically adjusted based on your payment history, credit report, spending habits and financial resources.

By contrast, credit cards allow you to make minimum payments and carry a balance from month to month so that you can pay your balance off over a period of time. Credit cards have set credit limits and interest rates that can vary based on an applicant’s creditworthiness.

What is an Annual Fee on a Charge Card?

Charge cards can have annual fees that range from $95 to $2,500. While some credit cards also have annual fees, there are a variety of no annual fee credit cards available. Whether it’s worth it for you to have a card that carries an annual fee may depend on your spending and travel habits.

What are Charge Card Interest Rates?

Since charge card balances must be paid in full every month, there is no interest charged.  A credit card’s interest rate is one of the card’s most important features because it determines how much you will pay to carry an outstanding balance. That said, you can avoid paying any interest on your credit card purchases by paying your balance in full by the payment due date every month.

What are Charge Card Rewards?

Charge cards were once known for offering better rewards than credit cards, however credit card rewards have become increasingly enticing to consumers. Benefits like travel insurance, extended product warranties and flexible redemption options are widely available on a variety of cash rewards cards and credit cards with no annual fees.

What are Charge Card Qualifications?

Consumers typically need to have good to excellent credit to qualify for a charge card.

What are Charge Card Late Fees?

Both credit cards and charge cards can come with various fees and penalties for late payments. If your charge card balance isn’t paid in full by the due date, you’ll face a late fee – either a flat fee or a percentage of your balance.

What’s the Impact of Getting a Charge Card on My Credit Score?

Charge cards and credit cards can be equally effective ways to build your credit history. However, because a charge card has no interest or set spending limit, determining its impact on the credit utilization part of your credit score is more complicated.

Your credit utilization rate is the amount of your total available credit on all accounts that is being used. Because credit scoring agencies factor your credit utilization in different ways, older scoring models may factor the charge card’s highest balance in its history as if it were a credit limit. By contrast, newer credit scoring models consider a charge card as part of the credit score’s payment performance component, but discount it within the credit utilization calculation.

Whether you have a charge card or credit card, the most important factor in building and maintaining a positive credit score is using your card responsibly and paying your bills on time.

Originally published February 13, 2015

Updated August 5, 2019

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