Charge Card vs. Credit Card: Key Similarities and Differences
While they are similar in some ways, charge cards and credit cards have distinct differences you must account for.
Contributing Writer at Tally
May 20, 2022
When speaking about credit cards, people often use the terms “credit card” and “charge card” interchangeably. While this is generally accepted, they are actually two different things tailored to different types of users.
There are some similarities when weighing a charge card vs. a credit card, but they are few and not very significant. What matters more are the critical differences between them. Below, we’ll cover the key similarities and differences between credit cards and charge cards.
Credit cards vs. charge cards: Are they the same?
In short, no, credit cards and charge cards are not the same. Despite some key similarities, they have different functions and work best for different types of users.
Similarities between credit cards and charge cards
Let’s first review the few similarities between charge cards and credit cards, as there are a few:
Physical card: The first similarity is the card itself. They are the same small, plastic card with a magnetic strip and chip.
Use: You use a credit card and charge card the same way. You purchase your items, then either swipe the card or insert the chip into a card reader.
Billing cycle: Credit cards and charge cards each have monthly billing cycles and you’ll receive a statement every month.
Annual fee: Credit cards and charge cards may have an annual fee.
Rewards: Credit cards and charge cards often have rewards programs that give the cardholder gifts or statement credits for using the card.
Credit check: When applying for either a credit card or a charge card, the issuing company will perform a hard credit inquiry to check your credit score and credit history. If you don’t have a high enough credit score or have other issues on your credit report, you may be rejected.
Fraud protection: A big benefit of credit cards and charge cards is you are not responsible for any unauthorized charges made on the account.
Differences between a credit card and charge card
As noted above, charge cards and credit cards look and function similarly but have a handful of key differences. The distinctions between them are as follows.
When you use a credit card, you can make a big purchase and make small monthly payments on it over time. It’s generally recommended to pay more than the minimum payment every month — preferably your full statement balance if possible. However, with a credit card, you do have the option to pay less than your full balance. You will be charged interest on any remaining balance after your statement due date.
A charge card does not give you the option to make small monthly payments. Instead, the charge card issuer expects you to pay your balance in full by the due date every month. If you don’t pay the full balance, you will incur a late fee and potentially have your charge card usage restricted.
Credit cards generally have a variable interest rate — sometimes referred to as an annual percentage rate (APR) — that applies to any balance that remains after the payment due date. The rates can reach into the 20% or higher range, so credit card interest charges can add up over time and make paying off a large purchase a long process.
Because a charge card issuer expects you to pay the entire balance in full monthly, you don’t pay interest on it.
Preset spending limit
With a credit card, once you’re approved, the credit card company gives you a preset spending limit. As you spend more on the credit card, your available credit decreases. While you can request a credit limit increase, this is essentially a fixed amount you can charge to the account.
A charge card comes with no preset spending limit. Instead, the charge card issuer will approve purchase amounts based on various factors, such as income and the amount of time you’ve been a cardholder.
When searching for a credit card, there are seemingly limitless types of cards from Mastercard, Visa, Discover and American Express to choose from with various perks and rewards. You can easily find a credit card issuer that meets your spending habits so you can maximize your rewards points.
There are far fewer charge cards on the market, limiting your ability to get a card to match your spending trends. Today, American Express and Capital One are two of the few major credit card companies still offering charge cards.
Credit score impact
Both cards require a hard credit inquiry, which can impact your credit score for up to 12 months in the FICO scoring model. Also, if your credit card or charge card payment is 30 or more days late, this can result in a negative mark on your payment history, which can significantly damage your credit score. This is where the similarities end between a charge card and a credit card regarding your credit score.
The balance you carry on a credit card impacts your credit utilization ratio — your total credit card balances divided by your total credit limit on all cards. The higher your credit utilization ratio is, the more of a negative impact it has on your credit score. Your credit utilization is part of the “amounts owed” FICO scoring variable, which accounts for 30% of your credit score.
Since you’re expected to pay off a charge card balance every month, the balance you have on one does not impact your credit utilization rate with the credit bureaus.
Credit card vs. charge card: Which is best for you?
Because of the wide variety of credit cards available, they are often the best fit for most consumers. Credit cards also have a wide range of qualification requirements, making them good for people with average credit or those with excellent credit. Plus, there are secured credit card options for those with poor credit.
Charge cards are generally used by business owners or individuals on an irregular income who are simply looking to stabilize their cash flow from month to month without incurring interest. However, they often require good or excellent credit scores, making them difficult for the average consumer to get.
Credit card vs. charge card: Similar but very different
Credit cards and charge cards have some similarities, like the ability to pay later for a purchase, the convenience of swiping the card at a retailer, rewards points and other perks. However, a charge card does not allow you to make monthly payments, nor does it have an interest rate or impact your credit utilization ratio.
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