What Is a Charge Card + How Does It Compare to Credit Cards?

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Charging something to your credit card doesn’t make it a charge card. Many people use the terms charge card and credit card interchangeably, but there are many differences between the two. So what is a charge card? A charge card is a specific type of credit card that requires the spender to pay back their debt in full, monthly. This card is designed for those who want the benefits of a credit card without the risk of going into debt.

To help you understand the ins and outs of a charge card, we discuss what a charge card is, how to get one, it’s most popular features and how it compares to a credit card.

What Is a Charge Card?

A charge card is a small plastic card that’s issued by a bank, allowing a spender to purchase items on credit as long as they pay back their monthly debt in full.

Charge cards look exactly like credit cards and function similarly, allowing the holder to purchase goods and services using credit. Where they differ is that charge cards are meant to be paid back immediately. A charge card limits the amount of debt you have by making you pay it off each month. Credit cards don’t require you to pay back your full debt, but they typically charge you interest which can add up and cause you to get buried in debt.

How Do You Get a Charge Card?

If you’re interested in getting a charge card, you’ll have to apply for one. This application requires a credit check. Charge cards are typically issued to those with good to excellent credit, so those with poor credit will have a hard time getting approved. Having good credit shows that you’re responsible and will be able to pay the monthly balance on time.

8 Features of a Charge Card 

If you’re considering getting a charge card, you should be aware of the advantages and disadvantages of having this type of card.

1. No Spending Limit

Yes, you read that right. A charge card doesn’t have a preset spending limit. Once you’re approved, you have the freedom to spend as much as you’d like using this card, as long as you can pay it back at the end of the month.

2. Bill Must Be Paid in Full Each Month

The main appeal of a charge card is that you have to pay back the spending amount each month, making it harder to go into debt. It’s a good stepping stone for those trying to build credit or learning to manage their finances.

What happens if you don’t pay a charge card in full each month?

If the bill isn’t paid in full each month, there are high late fees and other penalties. For example, the late fee on an American Express charge card is $27 the first time you miss a payment. If you miss again in the next six months, you’ll be charged $38. You may also have to pay a percentage of interest on the funds that remain unpaid.

3. Rarely Any Outstanding Balance or Interest

Charge cards rarely have any outstanding balance because they require owners to pay the bill monthly. Since there is no debt accumulated, there is no interest that needs to be paid on the debt. Charge cards don’t have an annual percentage rate (APR).

4. Less Impact on Your Credit Score

Charge cards involve borrowing money so they have a small impact on your credit score.

Credit inquiries

Similar to a credit card, the issuer will examine your credit report when you apply for a charge card. This hard inquiry will be on your credit reports for about two years. The number of hard inquiries you have only accounts for 10 percent of your overall FICO credit score so it shouldn’t have a large impact on your overall score.

Utilization Ratio

When building your credit score with a credit card, your credit utilization ratio accounts for 30 percent of your credit score. This ratio is your statement balance divided by your spending limit. However, since charge cards don’t have a spending limit, there is no credit utilization for credit reporting agencies to consider. Both FICO and VantageScore credit scoring models don’t take credit utilization into account on charge cards.

On-time Payments

One of the most important factors of building your credit score is making payments on time. Payment history makes up 45 percent of your overall credit score. Many people go into debt by just paying the minimum on their credit card bill or missing payments and having to pay the late fee. With a charge card, you’re required to pay your full bill monthly. Making these full payments on time each month can help you build your credit and avoid debt.

5. Typically Have an Annual Fee

Charge card issuers don’t make money on interest like they do with credit cards, so they usually charge a higher annual fee. The annual fee can range from $150 to $550. This annual fee is sometimes waived the first year.

6. Rewards and Perks Offered

Many choose to pay the high annual fee because the rewards and perks make up for this amount. Similar to credit cards, charge cards offer generous rewards benefits such as points that can be used for shopping and travel.

7. Not Many Providers

Credit cards have many different issuers and offerings. Every bank has its own credit card and almost anyone, no matter their credit score, can apply for some version of a credit card.

Charge cards are less common because banks can’t make money on interest. American Express is one of the last remaining charge card issuers.

Some retailers used to offer charge cards that you can use at their stores, but most of these have changed to credit cards.

8. Acceptance is Limited

Since they are less common, charge cards aren’t always accepted forms of payment. This can make it difficult to use a charge card as your primary method of payment.

This is something to consider when weighing the benefits and additional rewards of a charge card. If you aren’t able to use it, you won’t earn points. You’ll also need to consider getting a backup card like Visa or Mastercard that’s more widely accepted, in the event your charge card can’t be used.

Charge Card vs. Credit Card: How Do You Choose? 

Charge cards and credit cards have their similarities and differences. Choosing which card is best will depend on your financial situation and habits. To get a clear idea of what each one offers, we’ve outlined the differences below.


Charge Card Credit Card
Need good credit to apply Yes Depends on the card
Preset spending limit No Yes
Requires you to pay the full bill each month Yes No but you have to make a minimum payment
Charges interest No Generally yes
Late fees Yes Yes
Annual fee Yes Depends on the card
Builds credit Yes Yes
Rewards Yes Yes
Many card issuers No Yes
Widely accepted by establishments No Yes


After analyzing the differences between a charge card and credit card, which is the best fit for you? Turbo can help you look at your credit score for free and analyze your financial health. From there you can determine if this type of credit card is the best choice for you.


Investopedia | American Express | myFICO