Charge cards are no longer as popular as they used to be, but there’s still a handful that you can apply for, either for your personal expenses or your business.
Below we explain the difference between charge cards and credit cards, and explain exactly what you need to know about each.
But what is a charge card? If you were to look up a credit card definition, it'd be similar in almost every way except for a few key differences. In this guide, we’ll cover those main differences between the two and explore whether a charge card is right for you.
What is a credit card?
A credit card is a form of revolving credit that allows you to borrow money, pay it off, and borrow again. Unlike installment credit, such as a personal or auto loan, a credit card doesn't have a set repayment term. There's also just a minimum monthly payment that you're required to make each month.
If you make that payment, you're on time. But if you don't pay off the balance in full, you'll owe interest on whatever you carry from month to month.
Charge cards work the same way as conventional credit cards in a lot of ways. But there are five key differences that you should be aware of before you apply for one.
Charge card vs. credit card: 5 differences to know
If you’re considering getting a charge card over a credit card, there are four primary features that you’ll need to consider and compare.
1. Charge cards are rare
You can get a credit card from just about any bank or credit union, but American Express is currently the only major credit card issuer that still offers charge cards.
As a result, you don’t have a lot of options to compare them to, and you may be giving up on better card options if you’re stuck on the idea of a charge card.
That also means you may have problems with acceptance. American Express cards aren’t as widely accepted as Visa, Mastercard, and Discover in the U.S. And acceptance is even worse internationally. So, you’ll want to keep a Visa or Mastercard as a backup just in case.
2. Charge cards have no preset spending limit
Credit cards come with a credit limit, and once you reach that limit, you can no longer use the card until you pay down the balance.
With a charge card, however, there is no credit limit, which means you’ll have more flexibility. This is an excellent feature for big spenders.
Don’t take that as an unlimited spending limit, though. You may still be limited based on your income level and typical spending patterns. But if you need to make a large purchase and call the card issuer beforehand, you may have no issues getting the transaction approved.
3. Charge cards require you to pay in full each month
Instead of allowing you to carry a balance from month to month on interest, charge cards require you to pay your balance in full every month. If you don’t, you may be charged a penalty.
That said, American Express recently rolled out Pay Over Time, a program that allows charge cardholders to carry a balance with interest on eligible charges over $100. You have to apply, though, and there’s no guarantee you’ll get approved.
Because charge cards require a full monthly payment, they’re not a good idea for someone who overspends or plans to carry a balance.
4. Charge cards typically have hefty annual fees
The few charge cards that American Express offers — including The Platinum Card® from American Express and The Business Platinum Card from American Express OPEN — both have steep annual fees in the hundreds of dollars.
Of course, these cards also come with a lot of premium travel and shopping perks. But if you feel woozy about the idea of spending hundreds of dollars per year for one credit card, or you’re generally fee-averse, charge cards likely aren’t for you.
5. Charge cards don’t affect your credit utilization
Your credit utilization — the percentage of your available credit that you’re using at a given time — is the second-most important factor in your FICO credit score, making up 30% of your score.
Calculating your credit utilization is simple. Just divide the balance on a credit card by its credit limit. So, if you have a $1,000 balance on a card with a $5,000 limit, your utilization rate is 20%.
As you might have already guessed, it’s impossible to calculate credit utilization on a charge card because there’s no credit limit. As a result, you can rack up as much debt on the card as you want and it won’t spike your utilization and hurt your credit score.
Of course, you’ll still need to pay your balance in full each month. Otherwise, you could end up other with financial and credit problems.
Charge card vs. credit card: Which is right for you?
Charge cards are a very specialized form of credit cards, which means they’re not a great fit for everyone.
In general, charge cards are designed for people who spend a lot of money and can afford the high costs that come with such a card.
They don’t offer as much flexibility with payments as regular credit cards, though, so they may not be a good fit if you ever plan to carry a balance or at least want that safety net.
As you consider the differences, think about your lifestyle and budget, as well as your top priorities in a new credit card, before you make a choice. And remember, just because you choose a card, it doesn’t mean you’re married to it.
If you opt for a charge card and decide it’s not the right fit, or vice versa, you can always close the card and switch to the alternative.
Editorial Note: This content is not provided or commissioned by the credit card issuer. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through a credit card issuer partnership.
This article was last updated April 16, 2019 but some terms and conditions may have changed or are no longer available. For the most accurate and up to date information please consult the terms and conditions found on the issuer website.