Charge cards vs. credit cards: What are the differences? 

On the surface, it may seem like there is little difference between a charge card and a credit card since both help you to finance purchases to pay off at a later date. But there are distinct differences that separate them, such as when it comes to making payments and how much credit you have to spend.

If you pay your balance in full and on time every month, a charge card might be a good choice, says credit expert John Ulzheimer, formerly of FICO and Equifax. “At the end of the month, you have to write, in some cases, a really big check,” he says about charge cards. “And you don’t have a whole lot of options when it comes to prolonging your payback of the balance. It’s a built-in debt-prevention tool within the card.”

Savvy budgeting and financial prowess can put you in a position to pay off your card in full each period. But if you tend to carry a balance from month to month, a credit card is likely better for you. Here are a few key differences between the two card types and how you can choose the best one for your lifestyle.

Charge card vs. credit card

Main differences between charge cards and credit cards

The main difference between charge cards and credit cards is your ability to carry a balance. Most charge cards require cardholders to pay their balance in full each month, whereas credit card holders can carry a balance (but with added interest charges).

Let’s take a look at the other main differences to consider when comparing charge cards and credit cards.

Credit limit

Unlike credit cards, which come with a preset credit limit, charge cards typically don’t offer a preset credit limit. This doesn’t necessarily mean there’s no maximum to your monthly spending with a charge card, however. Instead, your issuer may set a spending limit based on factors like your income and spending habits. Depending on your payment history, credit record and other aspects of your card usage, the limit can be moved to fit your needs and risk factors — a useful feature when running a business or spending heavily. Although it’s not uncapped spending, this feature can still be a major advantage of charge cards.

Credit cards come with preset credit limits, which are determined by the issuer during the approval process. The limit that you’re approved for will depend on various factors, such as your credit score, credit history, income, etc. With a credit card, you can have your credit limit increased, but these increases are usually less frequent and they will require approval from your issuer. If you’d like to increase your credit card limit, it never hurts to ask your issuer.

It’s also worth noting that you’ll need to be mindful of your credit utilization with a credit card. Generally, it’s recommended that you don’t spend more than 30 percent of your available credit limit. If you use more than 30 percent of your available credit, your credit score will likely drop as a result. With a charge card, you won’t have to worry about this factor since you won’t have a preset spending limit.

Interest rate

Charge cards require you to pay off balances in full each month, which means that they don’t typically charge an APR. However, if you miss a payment, you will likely pay a late fee — or worse, risk your account being suspended or closed. Be sure to read your charge card or credit card agreement closely to avoid facing any unexpected charges or situations.

Credit cards, however, charge a fixed or variable APR on any balances you carry from month to month. You’ll also likely pay interest on cash advances or late payments. That said, even today’s best credit cards can become debt traps in the wrong hands, so the added discipline demanded by charge cards may appeal to some. Regardless, paying your credit card balance in full each month will leave you better off financially in the long run.

Late fees

The types of fees you may take on with a charge card are generally the same as with a typical credit card, but there are a couple of differences worth mentioning. Rather than accumulating interest on outstanding balances, you will likely be charged a steep late fee on an unpaid monthly balance with a charge card, and too many late fees may also lead to account closure or suspension.

For instance, The Plum Card® from American Express charges a late payment fee of $39 or 1.5 percent of the past due amount (whichever is greater) on the first late payment. If you neglect to pay for two billing periods in a row, a fee of $39 or 2.99 percent of the past due amount (whichever is greater) applies.

Most credit cards feature late payment fees, but some credit cards, like the Discover it® Cash Back, waive the late fee for your first late payment (then a fee of up to $41). For most credit cards, you’ll typically pay a late fee of up to $41 for any late or returned payments.

Annual fees

Most charge cards come with annual fees, but some business charge cards, like the Brex 30 Card, don’t charge an annual fee. Since your issuer is less likely to make money on interest payments for a charge card, they’re more likely to charge an annual fee. However, like with credit cards, charge cards often come with rewards structures that may allow you to earn back the cost of membership through spending or other benefits.

Credit cards typically have annual fees ranging from $0 to $695. The credit cards that charge a hefty price tag tend to be premium travel cards, but they frequently come with plenty of potential savings and perks, like travel statement credits and airport lounge access. However, there are plenty of no-annual-fee rewards card options with serious value, many of which will help you earn boosted rewards on everyday spending.

Rewards and perks

Many charge cards (particularly those issued by American Express) feature top-of-the-line rewards and perks, especially for those interested in travel benefits. Plus, the flexible spending capabilities offered by many charge cards allow for huge rewards-earning potential. Still, other charge cards may feature a flat 1.5 percent cash back rate or a rewards structure that’s dependent on meeting certain payment terms.

That said, many credit cards offer higher rewards rates than charge cards, and more benefits, especially for certain types of purchases. For example, the Chase Sapphire Reserve® is frequently considered to be one of the best travel credit cards on the market today. For a $550 annual fee, you’ll get numerous benefits, including 10X points on Chase Ultimate Rewards dining purchases, 10X points on hotel stays and car rentals booked through Chase Ultimate Rewards, 10X points on Lyft rides (through March 2025), 5X points on air travel booked through Ultimate Rewards, 3X points on general travel and restaurant purchases, access to over 1,300 airport lounges, up to $300 in annual statement credits on qualifying travel purchases, extensive travel insurance, 1:1 points transfers to Chase travel partners, a 50 percent points boost on travel redemptions through the Chase portal and so much more.

Accessibility

In addition to a high annual fee, there are other barriers to entry that may make charge cards less accessible for some consumers. For instance, American Express is the leading issuer of charge cards; options are somewhat limited across other issuing banks. With credit cards, there’s a lot more to choose from. It’s easy to find various combinations of rewards structures, benefits, fees, promotional offers, APRs and other card features that make it possible for any potential cardholder to find the best credit card to fit their lifestyle.

In addition to the limited amount of choices, charge cards require proven creditworthiness. It’ll generally take at least a good credit score (usually 670 or higher) to qualify for a charge card, which can make approval more difficult for those with an unfortunate financial history. On the other hand, credit cards are available to a wider range of applicants, including those with bad credit or even no credit history. And if an applicant can’t qualify for a traditional credit card due to bad or no credit, they may be able to qualify for a secured credit card.

Credit score impact

Both credit card and charge card accounts will report your payment history to the three credit bureaus: Equifax, Experian and TransUnion. Either card can be a helpful tool to build your credit effectively with responsible use, but charge cards have a slightly different impact.

Due to their nature, charge cards impact factors like your payment history and length of credit history, but they will not have any effect on your credit utilization. Because a charge card doesn’t have a preset credit limit, utilization is more difficult to determine, so scoring models generally don’t account for charge card utilization rates. On the other hand, credit cards will impact each factor that makes up your credit score, so it’s important to be mindful of how much credit you’re using in relation to how much you have available.

The bottom line

Credit cards offer more flexibility when it comes to revolving credit, but that doesn’t come without its downsides. Carrying a balance on a credit card can lead to an unpleasant amount of debt without the right discipline. Charge cards, on the other hand, typically need to be paid off in full each month. If you fail to pay off your balance in full, the issuer may close your account and issue a hefty fee. It can be hard to decipher which type of card is better for you, as both charge cards and credit cards can help you build credit and earn rewards, among other things. The decision is ultimately up to you and your financial needs.