When comparing credit cards vs. charge cards, you'll notice a few key differences. The most notable difference is that when using a charge card, you won't be able to carry a monthly balance like you would when using a credit card. Instead, charges must be paid off month to month. Both credit cards and charge cards have the potential to bring value to you as a consumer, depending on your financial goals and needs.
Keep reading to learn more about the differences between credit cards and charge cards, and decide which one is right for you.
Credit cards vs. charge cards
While charge cards and credit cards are used in the same way to make purchases, they have essential differences. When using a charge card, you’ll be required to pay off in full what you've spent every month; you won't have the option to carry a balance like you would when using a credit card. This aspect of charge cards may help prevent overspending, as cardholders know they’ll have to pay in full each month, rather than just the minimum payment. Therefore, you won’t have a credit limit with a charge card.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Additionally, since you don’t carry a balance from month to month when using a charge card, these cards don't offer 0% APR offers or balance transfers like some of the best rewards credit cards or balance transfer credit cards do.
Differences between charge cards and credit cards
Here's a closer look at the differences between charge cards and credit cards.
Payments: The biggest difference between charge cards and credit cards is how they're paid off. Any balances on charge cards must be paid off in full each month, and if you fail to do so, your card could be canceled. On the other hand, when using a credit card, you can roll balances over to the next month, just making the minimum payment. Although this isn't recommended if you want to avoid expensive interest payments.
Credit limit: Charge cards do not have a credit limit associated with them, while credit cards do. However, charge card issuers can set spending limits (that are subject to change) based on your income, spending habits and payment history, so this doesn’t necessarily mean you can spend an unlimited amount.
Credit score requirements: To be approved for a charge card, you’ll likely need to have at least a good credit score, which is a minimum FICO score of 670 or a VantageScore of 661. Required credit scores for traditional credit cards vary between cards. Some cards require excellent scores, while others are geared toward consumers with bad credit scores and/or limited credit history.
Credit score impact: Payment history for both charge cards and credit cards is reported to the three main credit bureaus (Equifax, Experian and Transunion). However, charge cards, unlike credit cards, will not affect your credit utilization (the percentage of debt you are using relative to your debt limit). This is because charge cards don't have a defined credit limit. Credit cards will affect your credit utilization, and therefore overall credit score, so bear that in mind if you plan on carrying a balance.
Interest rates: Since you won’t be able to carry a balance with a charge card, you’ll avoid having to pay any interest charges. If you do carry a balance on a traditional credit card, you’ll be subject to interest charges based on whatever your card’s APR is.
Fees: Most of the time, annual fees for charge cards are expensive, ranging from $150 to $695 in some cases. Credit cards, on the other hand, offer a wide range of cards with various fees. In fact, there are many no annual fee credit cards on the market that still offer beneficial rewards.
Although you won't accumulate interest when using a charge card, you will be subject to hefty late fees just as when using a credit card.
Availability: While there are hundreds of credit cards on the market, options for charge cards are pretty slim.
Also, you can use our tool below (in partnership with Bankrate) to find a credit card today.
Pros of charge cards
- No preset credit limit: If you plan on making a large purchase, using a charge card can be beneficial. You won’t be constrained by a preset credit limit or negatively impact your credit utilization or your credit score
- You'll avoid debt and interest: Since most charge cards require you to pay off balances in full each month, you’ll be able to avoid debt and accumulated interest.
- Rewards: Like credit cards, charge cards also offer rewards programs and added benefits.
Cons of charge cards
- Expensive fees: If you fail to pay off the balance on your charge card in full every month, you'll be subject to expensive late fees. With a credit card, you can easily avoid these fees by just making the minimum monthly payments. Plus, annual fees associated with charge cards are usually pretty hefty as well.
- You'll need good credit: To be approved for a charge card, you'll need to have a credit score of at least 670 as measured by FICO, or at least 661 as defined by VantageScore. People with a bad credit history are unlikely to be approved.
How to choose between a charge card or a credit card
Whether or not you opt for a charge card or traditional credit card depends on your specific financial needs.
With a charge card, you won’t be able to carry a balance, but with a credit card, you can. Because of this, credit cards offer more flexibility than charge cards, giving you more time to pay down expensive purchases. However, credit cards don’t always have the spending power that a charge card does, so if you think you might be hindered by a credit limit, a charge card may be a better choice.
Related articles
-
What Happens Financially When You Work One More Year?The impact of saving more, spending less later and benefiting from an extra year or more of compounding can be truly staggering.
-
Seven Ways to Spend Your Tax RefundYou may want to splurge, but using your tax refund to save for the future or pay down debt is a much better idea — even if not as fun.
-
TransUnion Fined $23M For Tenant Screening, Credit FreezesGovernment charges TransUnion over illegal rental background checks and security freezes on consumer credit reports.
-
How Many Credit Cards Should I Have?How many credit cards should you have? The answer isn’t as straightforward as you might think — it all depends on your financial situation.
-
Credit card delinquency expected to increase in 2023Credit card and personal loan delinquency rates are expected to increase this year.
-
What Is a Good Credit Score?Having a good credit score can save you hundreds, even thousands of dollars on credit cards, mortgages and other loans.
-
Best Credit Cards for Bad CreditIf used wisely, these credit cards can help you dig out of bad credit; you may even earn 2% cash back.
-
Freeze Your Credit in 3 Stepscredit & debt Freezing your accounts at the three major credit bureaus is the best way to prevent thieves from opening new credit accounts in your name.
-
How to Monitor Your Credit Reports for Freecredit reports Don't get suckered into paying for credit monitoring services. There are free options all around.
-
Did Equifax Botch Your Credit Score?credit score Equifax is in the news–yet again–this time for sending lenders the wrong credit score. Here’s how to find out if you were affected and what to do next.
