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Charge Card vs. Credit Card: What's the Difference?

Credit cards let you carry a balance month-to-month, while charge cards require you to pay your balance in full.

A woman is sitting at a table with her hand resting on her chin as she browses on her computer with a credit card in hand.

Although credit cards and charge cards work similarly, one traditional difference defines them clearly. While you can carry a balance with a traditional credit card, most charge cards are designed to be paid off immediately. But some charge cards have evolved over the years, and many cards -- such as those from American Express -- now allow you to make payments over time. Despite this convergence, there are still a few other differences to consider.

What are charge cards?

A charge card is a type of credit card with no preset spending limit. Unlike traditional credit cards, you typically cannot carry a balance and must pay your balance in full every month. Charge cards often have higher annual fees than many credit cards but also provide greater spending power. Some charge cards include additional benefits and rewards, while others are solely used to make purchases. However, charge cards can also trip you up with steep late fees.

Key differences between charge cards and credit cards

Charge cards and credit cards are both used to make purchases in a similar manner, but key differences that set them apart.

Spending limit

You are assigned a credit limit when you get approved for a traditional credit card. A credit limit is how much credit the issuer provides you, and you can spend up to this amount before facing steep penalties. Charge cards often have no preset spending limit, giving you more spending power than a typical credit card. Instead, your purchasing power is adjusted to reflect your overall spending capacity. This may be based on your payment history, debt, credit, income, and other risk factors deemed relevant by the issuer. 

Interest rate

Since charge cards aren't necessarily designed to carry a balance, they provide an unavoidable way to dodge draining interest payments. American Express, for instance, often allows cardholders to roll over a balance -- but if you go this route, you will pay interest on the remaining balance. The same rule applies to credit cards: As long as you pay your balance in full and on time every month, you won't have to pay interest. 

Late fees

Charge cards and credit cards carry similar fees, but there are a few differences regarding flexibility. With credit cards, you can avoid late payment fees by making at least the minimum payment. But with a charge card, you may be charged a late payment fee if you don't pay your balance in full. 

Annual fees

A handful of credit cards charge an annual fee, though plenty of no-annual-fee credit cards are available on the market today, too. Charge cards are more likely to come with an annual fee because the issuer isn't making much (if anything) from interest payments. However, you can often recoup the fee through rewards and cardholder benefits.

Rewards and cardholder benefits

Charge cards have a reputation for being superior to most credit cards, especially when it comes to rewards. They often offer the same benefits and perks as credit cards, but usually with a higher redemption value. 

Credit cards have evolved from a payment tool to a full-fledged moneymaking tool. It's not uncommon for a standard credit card to offer upwards of 25,000 points after spending a minimum amount or provide a generous welcome bonus to get you to open the account. And while the rewards rate isn't always as high as a charge card's, the vast number of credit cards available means you should be able to find one that fits your lifestyle and spending habits. 

Credit score requirements 

Charge cards typically require good to excellent credit, while some credit cards will approve you for an account if your credit is less than stellar. Many credit products are available for people looking to improve their credit or build credit, like secured credit cards and student credit cards

How do charge cards impact your credit score?

The most significant difference in terms of the impact on your credit score is that charge cards don't have a credit limit, so they're not factored into your credit utilization ratio. Credit utilization is the ratio of your current balances to available credit, accounting for up to 30% of your credit score. If you have a high balance on a charge card for one month, it won't have the same effect as running up a high utilization on a traditional credit card. But at the same time, if you keep your balance reasonably low on a charge card, you won't get the credit-score benefit of low utilization.

However, like traditional credit cards, charge card accounts will still report your payment history to the three credit bureaus: Equifax, Experian and Experian TransUnion.

The bottom line

Credit cards provide more room for flexibility because you can carry a balance -- though interest is a rather costly consequence. On the flip side, you can bypass the lingering threat of costly interest by paying your balance off in full with a charge card. If you are trying to decide between a charge card and a credit card, it all comes down to how much spending power you need and what you are willing to pay for that kind of spending power annually.  

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