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Charge Cards — Definition & Differences vs. Credit Cards With Interest

Advertiser Disclosure: This post includes references to offers from our partners. We receive compensation when you click on links to those products. However, the opinions expressed here are ours alone and at no time has the editorial content been provided, reviewed, or approved by any issuer.

Payment cards are among the most popular ways for people to pay for purchases when they go shopping. In 2016, Americans spent almost $6 trillion using cards instead of cash, check, or other forms of payment.

When talking about paying for something using a card, most people think of credit cards, but there is another type of card that people can use to make purchases: charge cards.

What Is a Charge Card?

Charge cards are similar to credit cards, but they have a few important differences.

Like credit cards, charge cards are plastic or metal cards that you can use to make purchases. You can use them to make in-person transactions or to make purchases online using your account numbers.

Charge cards are issued by lenders just like credit cards. When you use a charge card to make a purchase, the card issuer sends the payment to the merchant. You have to pay the issuer back at a later date.

Many people — even those who use both credit cards and charge cards — won’t notice a significant difference between them, but that doesn’t mean that the differences aren’t important.


How Charge Cards Differ From Credit Cards

These are some of the key differences between charge cards and credit cards.

1. No Preset Spending Limit

One of the most striking differences between charge cards and credit cards is the lack of a spending limit.

When you get a credit card, the card issuer will give you a credit limit. You can spend money using the card until your balance reaches the limit. Once you’ve reached the limit, you can’t make any more purchases with the card until you’ve paid down the balance.

For example, a credit card might have a $1,000 credit limit. If you have no balance, you can use the card to buy anything up to $1,000. If you use the card to make a $300 purchase, you’ll have $700 of your credit limit remaining.

After that, if you want to make a $650 purchase, you can. But if you want to make a $750 purchase, you can’t because it will send you over your credit limit.

Unlike credit cards, charge cards don’t come with a preset spending limit.

That doesn’t mean that you can go out and spend as much money as you want to spend using the card. There is a limit, but the card issuer won’t tell you what the limit is. Instead, the card issuer will make a decision on a case-by-case basis whether or not to let a transaction go through.

Often, the amount of credit that charge card issuers are willing to extend is higher than the credit limits that credit card issuers give.

This gives you more flexibility when using a charge card because you don’t have to worry about going over a credit limit. If you’re planning to make a big purchase, you can just let your card issuer know and make sure they’ll approve it.

2. No Ability to Carry a Balance

Possibly the biggest difference between credit cards and charge cards is that charge cards don’t let you carry a balance.

When you buy something with a credit card, the card issuer adds the amount of the purchase to your card balance. At the end of the statement period, the card issuer sends you a bill with your total card balance, as well as a minimum payment amount.

You can choose to pay the full balance of the card, returning its balance to $0. You can also choose to pay the minimum balance or any amount between the minimum and the full balance.

If you don’t pay the balance in full, the balance that’s left stays on the card and begins to accrue interest. You’ll get a bill the next month that includes the remaining balance, any interest charges, and any new purchases you’ve made.

By contrast, when you use a charge card, you don’t have the option to carry a balance from month to month. You must pay the full amount when you receive your statement each month.

The upside of this is that you don’t have to worry about paying interest. Credit card interest rates can be incredibly high, so not having the option to fall into debt with a charge card could be a good thing in the long run. However, it could be helpful to have the flexibility a credit card offers you to carry a small balance in an emergency.

3. Credit Score Requirements

When you apply for a credit card or a charge card, the card issuer typically asks one or more of the credit bureaus for a copy of your credit report.

Your credit report contains a history of your interactions with debt and credit. It also includes a numerical score between 300 and 850 that gives lenders a rough idea of how trustworthy you are as a borrower.

Factors like a history of paying your bills on time and not having a lot of debt can help boost your score. Actions such as missing payments, having a lot of debt, or opening lots of credit card and loan accounts can reduce your credit score.

Based on your credit score and the information in your credit report, lenders decide whether to let you open a credit card or charge card account.

Typically, charge cards have more stringent credit requirements than credit cards. Charge card issuers expect you to pay the entire balance of your card every month, which is more difficult than meeting a small minimum payment like you have to do with a credit card.

Although there are premium credit cards with strict credit requirements, there are just as many that are designed for people with poor or no credit. Charge cards are almost exclusively available to people with good credit histories.

4. Annual Fees

Some card issuers charge an annual fee to people who hold certain cards.

With credit cards, these fees typically apply to premium rewards cards like the Chase Sapphire Reserve®. These cards offer valuable perks, like airline lounge access, early boarding for flights, free hotel stays and room upgrades, and cash back or statement credits for certain types of purchases.

These annual fees help compensate the card issuer for providing the perks.

Less premium credit cards, even basic cash-back rewards cards like the Citi® Double Cash, often come with no annual fee so cardholders can use them without paying for the privilege.

Charge cards almost always charge an annual fee. Most charge card issuers portray their cards as premium financial products and offer a variety of perks with them, including concierge service and travel benefits, so they charge a fee to offset the costs of those perks.

5. Less Availability

Credit cards are far more available than charge cards. Almost every lender and bank offers a credit card of some sort and many retail stores even offer branded credit cards that give you rewards when you shop.

By contrast, only a few companies in the United States issue charge cards, and the number of available charge cards has fallen in recent years.


Why Would You Want a Charge Card?

There are a few reasons you might want to apply for and use a charge card.

Rewards

Rewards are one of the best reasons to pay with any type of card, be it a credit card or a charge card.

Because charge cards tend to be premium cards, they often offer better rewards than a credit card would, both in the form of sign-up bonuses and in the form of ongoing rewards for regular spending.

In many situations, the rewards cardholders earn can more than cover the cost of the card’s annual fee.

Perks

Another reason to use charge cards is that they offer perks much like credit card perks.

Examples of charge card perks include statement credits for ordering delivery food or eating at certain restaurants, for airline fees, and for other types of business or consumer services.

Charge cards marketed to frequent travelers might also offer credits against resort fees or activities, room upgrades, access to airport lounges, and other valuable benefits.

Some premium credit cards offer similar perks, but just as many have few or no additional perks. The majority of charge cards include multiple perks that cardholders can take advantage of.

No Interest Charges

Because you can’t carry a balance from month to month using a charge card, you don’t have to worry about interest charges.

With a credit card, it’s easy to wind up paying far more than you intended to pay for something by carrying a balance. It isn’t unusual for a credit card to charge 20% interest or more, which can add up quickly.

With a charge card, you have to pay the balance in full each month. Although you have to pay annual fees and other charges like late payment fees, you won’t have to worry about paying huge amounts of interest on your purchases.


Final Word

Charge cards are highly similar to credit cards, but the distinctions are important. Although you lose the flexibility of carrying a balance, that isn’t a function of credit cards you should use frequently anyway.

In exchange, you get a premium experience with many perks and rewards, which makes charge cards worth considering for people who want a premium card.

Editorial Note: The editorial content on this page is not provided by any bank, credit card issuer, airline, or hotel chain, and has not been reviewed, approved, or otherwise endorsed by any of these entities. Opinions expressed here are the author's alone, not those of the bank, credit card issuer, airline, or hotel chain, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

TJ Porter
TJ is a Boston-based writer who focuses on credit cards, credit, and bank accounts. When he's not writing about all things personal finance, he enjoys cooking, esports, soccer, hockey, and games of the video and board varieties.

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