5 Differences Between Charge Cards and Credit Cards

Kat Tretina

October 18, 2018  •  3 Minute Read

Financial Tips

When you make a purchase, chances are you use plastic instead of cash. And because charge cards and credit cards look the same and can be used at the register in the same way, most people don’t give any thought to the fact that the two cards are very different.

But what type of card you have is important. It affects how much you owe each month, what you’ll pay in fees, and how much you can spend.

When deciding whether to open a credit card or a charge card, it’s important to keep these differences in mind to ensure you make the right choice for you.

5 ways charge cards and credit cards differ

Even though people often use the terms “charge card” and “credit card” interchangeably, they’re not at all the same. The cards differ in four key ways.

1. Spending limits

Credit cards have predetermined credit lines, meaning you can spend up to that amount. For example, if you have a $5,000 credit limit, you can spend up to $5,000. If you charge that full amount and try to make another purchase, your card will be declined. You need to make a payment to reduce your balance before you can use the card again.

With charge cards, there isn’t a set spending limit. Instead, how much you can charge is dependent on your income and spending habits. If you have high monthly expenses, a charge card can be a smart option because you’ll have more flexibility and are less likely to max out your card.

2. Amount owed each month

If you’re used to credit cards, how much you owe each month with a charge card can come as a shock. With credit cards, your minimum payment is typically just a fraction of your balance; you can spread out a costly purchase over months or even years if you so choose.

Charge cards are quite different. Rather than a small payment, you owe the full balance each month with a charge card.

That means you need to be more deliberate with your spending. You don’t get the benefit of being able to make payments, so it’s important to budget for purchases so you don’t incur late fees.

3. Fees

Although many credit cards have annual fees, it’s possible to find good cards without one. With charge cards, it’s much harder. Most charge cards have significant annual fees — some as high as $600 — which can make them an expensive option for most.

Some people might find them worthwhile because of the benefits or rewards certain charge cards offer, but it’s important to calculate how valuable those rewards are in order to decide if they justify the cost of the annual fee.

4. Availability

There are literally hundreds of credit cards offered. You can compare offers from multiple credit card companies to ensure you get the best rewards, lowest APRs, and lowest fees.

With charge cards, your options are much more limited. As of September 2018, American Express is the only major company that offers charge cards. There’s just a handful of cards to choose from, including the familiar green, gold and platinum cards.

5. Interest rates

Another thing that differentiates charge cards from credit cards is interest rates. With credit cards, the company sets an annual percentage rate (APR), which causes your account to accrue interest if you don’t pay off the statement balance each month.

Because charge cards have to be paid in full each month, there is no APR, so you don’t have to worry about your balance growing over time due to interest. This is a major reason why charge cards have annual fees, by the way - since interest income is not available for the issuer.

How to decide between a charge card and a credit card

Charge cards are a smart option for those with high monthly expenses who want to avoid paying interest by paying off their balance in full each month. It’s also a good choice for those who need an incentive to pay off their cards in full; if you don’t pay it off with a charge card, you’ll get hit with hefty fees, so it can be a powerful motivator.

If you typically carry a balance or need a few months to pay off a purchase, a charge card isn’t a good choice. You’d be better off with a low-interest credit card. A credit card will give you more time and you can still earn valuable rewards and get access to useful benefits, like travel protection.

If you’re looking for a new credit card, check out our favorite cards that offer valuable rewards and other benefits.