Charge Cards vs. Credit Cards — What’s the Difference?

John Ganotis

John Ganotis

Updated Nov 30, 2018

The main difference between charge cards and credit cards is how much you have to pay off each billing cycle compared to how much you owe:

  • Charge cards generally require that you pay off the full amount you spend on the card each month.
  • Credit cards only require that you pay off some minimum amount of the amount you owe each month. You can carry the rest over onto next month’s bill, although we recommend you always pay off your full statement balance every month to avoid paying expensive credit card interest.

Keep reading to find out more about the key differences between credit cards and charge cards. The better choice for you mostly depends on whether you plan to carry a balance.

Check out our top picks for the Best Charge Cards: 2018

Paying Your Bill

We’ll start here, since that’s the biggest difference when considering charge cards vs credit cards.

Credit Cards

With a credit card, you’ll get a bill each month that shows a statement balance and a minimum due. The statement balance is the full amount you owe, and the minimum due is a small percentage of what you owe.

As long as you pay at least the minimum due, your credit card issuer will consider your account to be in good standing and you won’t be charged a late fee. If you make at least the minimum payment, but don’t pay the full amount you owe in a statement period, the remaining balance will carry over to the next month. This is called “carrying” or “revolving” a balance.

A credit card has an APR (Annual Percentage Rate), which is effectively the interest rate. When you carry a balance from one month to the next, you’ll be charged interest, unless you have a 0% introductory APR.

As long as you have available credit, it’s possible to continue charging new purchases to the card, paying the minimum each month, and carrying the remaining balance over indefinitely. Most credit cards have a grace period, so you can avoid interest completely by paying off the card in full every month. With a credit card you have this option to pay some or all of what you owe, unlike with charge cards.

Charge Cards

Charge cards are different. There is no APR, because you’re expected to pay off the full amount you spend every month. You can’t simply pay part of your bill and pay interest on the rest.

If you fail to pay the entire balance by the due date, the issuer may charge a late fee, which is often around $30–40. They may also take other action on your account. For example, you may not be allowed to make additional purchases on the card until your past-due balance is paid off.

Some charge cards have a “pay over time” feature. This feature treats certain purchases like credit card balances, so you have the option to make a minimum payment and pay interest on purchases over time as you pay them off.

Annual Fees

A charge card will almost always come with an annual fee. There are many credit cards, on the other hand, that don’t have any annual fee.

Operating a credit card company costs money, so they need to make money somehow.

Many credit card companies make most of their money from interest fees. They charge these fees when people don’t pay in full and carry balances to the next billing cycle.

Since charge cards need to be paid in full each month, charge card companies can’t count on making revenue from interest fees on those cards, so they charge annual fees.

Credit Limits

Credit cards have a set credit limit. Credit card companies tell you the maximum balance you can have on a card at one time.

Charge cards generally do not have a preset spending limit. That doesn’t mean you can spend an unlimited amount. Instead, it means the charge card has an unpublished maximum spending limit for the account based on your spending habits, income, and creditworthiness. The financial institution will adjust this limit over time based on your previous charge card balances and payment history. This can allow you to make large purchases with a charge card, but you’ll usually need to pay them off in full when the bill is due.

Credit Requirements

Banks offer credit cards for many levels of credit, from bad to excellent. There are credit cards for students who have no credit history established, and high-end travel credit cards for people with many years of responsible borrowing. The fees, credit limits, benefits, and rewards can vary widely from one card to the next depending on the credit history of the applicant.

Charge cards generally require excellent credit, though, or roughly a FICO Score above 760. Since charge cards can allow for large purchases, charge card issuers want to make sure you have the track record and financial resources to pay off what you spend each month.

Cash Advances

A cash advance is when you use a credit card to get money out of an ATM. You’re borrowing money using your cash advance credit line, which is separate from your regular credit line.

Cash advances usually have fees and very high interest rates, so we recommend avoiding them unless it’s an absolute emergency. Interest will also start accumulating immediately, with no grace period, so they can get expensive quickly.

However, cash advances work a bit differently with charge cards compared to typical credit cards. American Express charge cards require you to set up and use the Express Cash system. This will let you designate a bank account to make withdrawals from, and will provide you with a PIN to use.

When you get a cash advance with an Amex charge card it will withdraw the money directly from your chosen bank account, for a fee of 3% or $5, whichever is greater.

Since you’re withdrawing your own money rather than borrowing the bank’s money, there are no interest rates to deal with. Once you pay the fee and get the cash, the process is complete.

This makes Amex charge cards some of the best options for taking out cash advances — but in this case they aren’t really cash advances, they’re more like regular bank account withdrawals, with a fee. If you need cash quickly and don’t have a debit card you can use to make withdrawals, Amex’s Express Cash system is a much better alternative to regular credit card cash advances.

Money orders are typically coded as cash advances when purchased with credit cards. But Amex charge cards will handle them differently, either processing them as regular purchases or potentially declining those transactions. Your mileage may vary depending on where you purchase money orders.

How Charge Cards Impact Credit Scores

When it comes to keeping your credit scores up, financial responsibility is key for both credit and charge cards. You need to be aware of your terms and how much you’re spending, and be sure to pay what you need to pay by your due dates. The main difference between how charge cards and credit cards affect your credit scores is how credit limits are reported to credit bureaus.

The biggest difference in credit score impact is based on how credit limits are reported. FICO scores and VantageScores look at your debt utilization ratio as major factor in your credit scores. For example, if you have a credit limit of $10,000 and a balance of $1,000, your debt utilization ratio is 10%.

A low debt utilization ratio shows that the card limit isn’t being maxed out. lower percentage is generally better for credit scores. This is why you shouldn’t habitually carry a large balance from month to month if you want to maximize your credit scores, even if you have a card with a 0% introductory APR period.

Remember, charge cards don’t have a published credit limit. When the charge card issuer reports the balance of the card to the credit bureau, the credit scoring models may factor in the highest balance to date and use that as the credit limit if the charge card issuer did not provide a limit.

Charge accounts are reported as “open” instead of “revolving” like a credit card. More recent versions of FICO scoring models will ignore these accounts when calculating debt utilization ratios. However, many lenders are using previous versions of FICO scores, which do not ignore this kind of account.

Other than how credit limits are reported, credit and charge cards will help your credit over time in the same ways. If you keep your accounts open for a long time and pay by your due dates, you’ll increase the average age of your credit lines and accumulate a history of timely payments, which are both very important for good credit scores.

If you make late payments or your payments get returned, these delinquencies will show up on your credit reports whether you’re using a charge card or a credit card. The biggest factor in most major credit scoring models is payment history, so late payments can bring down your scores significantly with either type of card.

Our Picks for the Best Charge Cards: 2018

Most issuers do not offer any charge cards, but there are several American Express charge cards on the market today. Some of them offer rewards or benefits that are comparable to the best credit cards. These charge cards earn points that can be transferred to airline or hotel loyalty programs.

Read more about why we picked these cards in The Best Charge Cards: 2018

Best for Premium Travel Rewards

Best for Regular Travelers

Best for Low Annual Fee

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