Charge Card vs Credit Card - What's the Difference?

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Charge cards and credit cards are commonly mistaken as the same thing. However, the fundamental difference is the ability of a card to carry a balance from month to month. Despite the fact the terms are often used interchangeably, only a credit card allows debt to be paid over time, with added interest, of course.

A charge card must be paid in full every month, if not, the account holder may quickly find their card will no longer work.

The Benefit of a Charge Card

We always recommend paying balances in full each month no matter which type of card you use. If you follow that advice, there shouldn’t be much of a difference in how you use any charge or credit card. However, an advantage of charge cards is they usually don’t have preset spending limits.

Keep in mind, that “no preset limit” does not equate to unlimited spending ability. The card issuer will still set limitations based on payment history, financial resources, credit score, etc. Just check online or call before making a large purchase to confirm your current purchasing power. And of course, you still must pay the entire balance in full according to the due dates set.

This is a great tool should the need for a large purchase arises. It allows greater flexibility than a credit card with a designated credit limit. It also helps avoid maximizing a credit card’s limit and thus increasing credit utilization which will negatively impact your overall credit score.

Impact on Your Credit Score

Credit scores are determined by multiple contributing factors including payment history, the age of your credit, credit utilization, etc. Credit utilization is the ratio of your debt to available credit. Since there are no preset spending limits on charge cards, credit bureaus cannot calculate this ratio. You can spend as much as you want on a charge card and it won’t affect the credit utilization factor of your credit score.

Consequences of Not Paying Full Balance

Credit cards allow account holders to carry a balance and simply pay interest if they make the minimum payment. If a minimum payment is not met, credit card holders are charged both interest and late fees. Interest fees are not traditionally an option with charge cards. Instead, if the full balance is not paid, then late fees are applied.

Taking things a step further, late, missed, or payments not in-full on charge cards will likely cause stricter scrutiny on your overall relationship with the card issuer. This could mean reduced charging ability or termination of accounts.

American Express Cards with “Pay Over Time”

American Express used to classify many of its most popular cards as charge cards, but they've recently decided they aren't really “charge cards” after all.

The reason is that even the Amex cards that don't function like traditional credit cards still offer cardmembers some flexibility to choose how and when they pay.

For example, The Platinum Card® from American Express has a feature called “Pay Over Time” that lets you pay for select charges over time with interest.

Is a Charge Card Right for You?

If you have a need for greater spending power and anticipate making large purchases, then a charge card might be the right choice. On the other hand, the Amex cards that have the Pay Over Time feature can offer the best of both worlds: You still get the flexibility of a card without a preset spending limit, but you can also finance some purchases with interest if needed.

The Amex Platinum also comes with extensive benefits including airport lounge access and some of the most valuable transferrable rewards points available.

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  • Stumbled upon this post linked through a more recent post (Beginner’s Guide to Credit Card Application Rules) and had NO idea there was an actual difference between a charge/credit card! This whole time I thought the two were synonymous.

    While I used to use my credit cards sparingly and only in emergencies (which often meant carrying a balance for a short period of time), this site has taught me how to use my cards wisely to maximize rewards, which has made a HUGE difference in less than ONE YEAR! I am forever grateful for always being able to log on here and learn something new every time. Thanks!

  • personally act like every credit card is a charge card anyway to always pay full balance so its not a difference i really care to much about

  • Credit cards offer you a great deal of consumer protections. You just have to pay the full balance by the full payment deadline.

  • I agree that if you have to worry about APR on a card then you shouldn’t be using any credit card that has miles, etc as a benefit.
    I have two boys that I am teaching about credit cards and it is tough. They see me use them all the time and so they think that we always have the money for whatever they want. But I’ve started showing them how much is on each card and how much money I make, etc so I know that I can pay it off and what happens if I don’t.
    It’s really important to understand any type of card you carry or are looking to get. I think too many people don’t understand how it all works. Thank you for an explanation.

  • Do charge cards come with the same protections against fraud as credit cards do?

  • Thank you for clarifying the differences between charge cards and credit cards. It is subtle but is important for all of us to understand so we can effectively manage our finances.

  • Use your credit cards as if they were charge / debit cards.

  • I always pay my credit cards bill in full each month.
    Not having the need to do huge expenses I don’t care to much about having a credit card or a charge card.
    I think for a company or a business person this will have an impact.

  • Couldn’t agree more! Currently I only have credit cards, but I pay them off every month. I guess I could look into a charge card at some point if I need to have more flexibility.

  • worldtraveler73 says:

    Do any long term charge card holders have greater success with a higher spending limit on a charge card versus their personal credit cards?

    My credit limit on my credit card is about 4X my usual monthly spend. There isn’t any way that I’ll usually hit that with a large purchase (save a deposit on a card once every 5 years)

  • All my credit cards are charge cards in my mind…though I think only one of them is a truly a charge card. As soon as you start paying interest, the benefits of the points earnings are negated this hobby is actually very expensive. When I”m talking about miles and points cards with someone and they ask me “what is the APR on the card/” I know this is not the hobby for them.

  • I never considered a charge card except when AMEX sent me a targeted offer. Credit cards have much better rewards options available

  • Yeah, I never carry a balance on my numerous credit cards, but a charge card might work in some situations. At the end of the day, just remember it’s still YOUR money you are spending – if you think of it as cash, you might think twice before buying something…..

  • Is there any other card issuer other than AmEx that offers charge cards?

  • Theresa Harris says:

    Good explanation… ive never paid attention to the differences as I do not carry a balance. I guess I do own a charge card actually… as well as several credit cards.