The Difference Between Charge Card and Credit Card

Charge Card vs. Credit Card

Man using credit card
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Though the names are sometimes used interchangeably, credit cards and charge cards are not the same thing.

The Difference Between Charge Cards and Credit Cards

A charge card is actually a type of credit card that requires you to pay your balance in full at the end of each billing cycle instead of making monthly minimum payments on the balance over several months. Charge cards force you to be responsible with your purchases because you have to pay your balance at the end of the month.

A credit card, on the other hand, allows you to have a revolving balance that you can pay off over a period of time. The convenience of making minimum payments is one of the things that leads consumers into credit card debt.

Some charge cards don’t have a preset credit limit, giving you a (seemingly) limitless amount of credit. Charge card issuers do have a soft spending limit for your charge card. The spending limit is based on what the credit card issuer thinks you can afford to repay each month based on a number of factors including your income and spending and payment habits.

Credit cards do have a set credit limit that's established when you're approved for the credit card. The credit limit stays the same for the most part unless you're approved for a credit limit increase or your credit card issuer lowers your credit limit. There may be penalties for exceeding your credit limit. For example, you’ll pay an over-the-limit fee and sometimes have your interest rate increased for exceeding the credit limit on your revolving credit card.

You typically need to have excellent credit to get a charge card. Credit cards are available for a variety of credit histories, from bad credit to excellent credit.

Few banks issue charge cards. In fact, American Express issues most charge cards.

Charge Card vs. Credit Card Cost

You won’t pay any interest on a charge card balance because you’re not allowed to carry a balance beyond the grace period.

However, you’ll face a steep penalty if your full balance isn’t paid by the due date. The late fee could be a flat fee or a percentage of your balance, depending on the card terms.

Credit cards also have a late fee that’s charged when you don’t make your minimum payment by the due date. By law, the late fee on a credit card can be a maximum of $35, and only if you've missed two consecutive payment.

Charge cards don’t have an interest rate, so that’s one factor you can take out of the equation when you’re shopping for a charge card. However, credit cards do have an interest rate. In fact, the credit card interest rate is one of the most important credit card features since the interest rate directly influences how much you pay for carrying a balance on your credit card. You can avoid paying interest on a credit card by paying the balance in full before the grace period ends.

Charge cards usually have an annual fee that could be waived in the first year. Annual fees vary depending on the card but could be as high as $500. Some credit cards also have an annual fee, but it’s easy to find a good credit card that doesn’t have an annual fee.

Restricted Transactions

Charge cards don't allow you to make balances or make cash advances.

If you're interested in having the ability to make either of these transactions, a credit card is the only option.

Charge Card Benefits

Charge cards sometimes come with additional benefits that are not typically offered by regular credit cards. For example, your charge card may offer roadside assistance, extended warranty on certain purchases, car rental insurance, purchase protection, and travel accident insurance.