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Charge Card VS Credit Card: What Is The Difference?

Charge Card VS Credit Card: What Is The Difference?

Today, there are so many payment options that sometimes even the most subtle differences in terminology can mean wildly different things. This is the case with charge cards and credit cards, which have frequently been used interchangeably for many years.

The first major difference is that charge cards usually need to be paid in full each month. Additionally, a credit card will have a predetermined spending limit, while a charge card will not. Also, charge cards are not meant to carry a balance and can institute heavy penalties after the due date.

While these are the biggest and most influential differences, there are some other differences you should know about and the details and specifics behind all of the contrasting points. It's not all differences, so we're also going to make sure we cover how they are similar as well. you can have a more complete picture of how they work.

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Charge Card vs. Credit Card: The Differences You Need To Know

There are three primary differences between charge cards and credit cards that make them incredibly different financial products. Charge cards will not have a preset spending limit, but they can be limited. Charge cards are also not meant to carry a balance and must be paid off each month. Credit cards are also known for being more flexible for those who cannot pay the entire balance at once.

Monthly Payments

When you have a charge card issued, the terms will generally state that the full balance is due each month. When used wisely, this can be a powerful way to monitor and control spending, since it will force you to pay the full amount you charge each month, but it can also set you up for failure if you aren't ready or capable of controlling your spending to that degree.

If you overspend one month with a credit card, you will be able to make a partial payment of the amount due, and carry the balance over to the next month, accruing interest along with it. This is because credit cards are considered revolving credit accounts, and charge cards are not, and create their terms for managing unpaid balances.

More like this: What Is Credit Card Churning?

Spending Limits

During the application process for a credit card, your creditworthiness and potential ability to pay are used to determine your eventual credit limit. This is the total amount of credit you have been granted on your revolving account.

If you are close to or even over your credit limit, likely, your next transaction will not be authorized. Some issuers will allow cardholders to arrange for extended limits in some circumstances, but with a charge card, this will not be the case with a charge card.

With a charge card, you will not have a predetermined limit that is set in writing during the account opening and setup. There are, however, provisions to limit spending based on total spending or suspicion of fraudulent activity. While the limit isn't determined at the account setup, it may be affected on an ongoing basis by any changes in your employment, income, or changes in your debt-to-income ratio.


Another notable difference between charge cards and credit cards is the ability to make minimum payments. With revolving credit accounts, their guidelines set the minimum amount due each month on a revolving balance with revolving credit accounts. If you have a balance of $1,200, for example, your credit card terms may dictate that you only need to pay 10% of that balance to avoid further penalties or account action.

Minimum payments are by no means ideal ways of managing credit card debt, but sometimes they're the only way to crawl out from underneath a robust balance. While credit card late fees are regulated and capped by the CARD Act, they can still assess a $29 fee for the first late payment, and $40 for every subsequent late payment.

If your minimum payment is less than that and you can't make it, those fees are going to present a significant threat. While credit card issuers may be more lenient on late fees and balances, this is not likely going to be the case with charge card issuers, who are going to be more likely to pursue negative account actions.

Card Issuers

A big difference between charge card and credit card issuers is the variety of available options. Countless credit card issuers can fill just about any spending needs, even providing cards that earn the user rewards of their choosing.

With charge cards, this is not the case, and the issuers are relatively limited. In many cases, you will need to open a charge card with the service or retailer where you wish to have the line of credit. In other cases, you will be able to get a charge card from one of the large providers, such as American Express, though the conditions of full pay off each month will still apply.

Keep reading: Minimum Credit Score Needed to Buy a Car

What Are The Credit Impacts Of A Charge Card Versus A Credit Card?

When you apply for both, they will each perform a hard inquiry of your credit report. This will give them the most detail they can have regarding your creditworthiness, and the hard inquiry will remain on your credit report for 24 months from the date of the request, so it's important not to make too many applications.

Frequently the issuer will be looking at your income and debt levels, and while charge cards do not have a spending limit, they may still require reasonable credit utilization scores. Credit cards, on the other hand, will require utilization data since your credit limit will largely be based on your ability to pay your debt.

With both charge cards and credit cards, your balance and payment information is reported to the main credit bureaus. If you carry a balance on your credit cards, your monthly payment will be recorded as on time or late in the usual fashion. If your charge card balance is not paid in full, that will also be recorded on your credit report as a late payment, which can haunt you for up to 7 years.

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Are There Any Similarities Between Charge Cards & Credit Cards?

While it may seem like there is nothing but vast differences between charge cards and credit cards, this couldn't be further from the truth and in fact, there are some significant similarities that may account for their tendency to be seen as interchangeable.

They both have a very similar application and approval process. They also have fees that will begin to accumulate if the account holder fails to pay the bill in full by the due date. In many cases, they will both have some sort of associated fees, such as annual account fees. They also both usually have protections against being liable for fraudulent activity, though not always.

Application Processes

The application process for both credit cards and charge cards will largely be the same. In some cases, you may even be applying to the same company, just applying for two potentially-separate financial products. They will require personal information, financial information including income and debt info, and more before deciding.

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Getting either a credit card or a charge card comes with some significant financial responsibility and requires that you manage your spending and payment diligently. If you run up charges on either a charge card or a credit card and fail to make the payment in time, there will be penalties and interest involved.

This can make the original debt much more severe if neglected for too long. If left unresolved for long enough, both credit card issuers and charge card issuers will prevent new charges, and may even close the account and send it to a collections agency.

Fees & Costs

There are charge cards, and credit cards are free to use and do not have any annual fees or costs associated with them, and there are those that do. The cards that do have annual fees will frequently have other perks or rewards involved, so if you have a card with an annual fee, be sure it's worth it, and switch to another card if you're simply paying to keep an account open.

Protection From Unauthorized Use

Since an enormous portion of credit card and charge card transactions take place digitally now, it is only fitting that issuers for both types of cards offer some form of protection against unauthorized or potentially fraudulent use. In most cases, this means not holding you liable for unauthorized charges that occur to your account if they are reported promptly.

Wrapping Up

As you can see, there are some ways in which charge cards and credit cards can be seen as incredibly similar, as well as some very important ways in which it seems they could not differ more. Depending on the account terms and conditions, you may be paying similar fees for the cards, but if you fall behind there can be some significant penalties.

If you're applying for a new account, make sure you know all the terms before agreeing, or you could find yourself in some trouble at the end of your very first billing cycle.

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