Difference Between a Charge Card and a Credit Card

While many people use the terms interchangeably, there are some big differences between credit cards and charge cards.

Generally, a credit card allows you to make purchases and be billed later. You can carry a balance on a credit card, but you will be charged interest on those purchases if you do not pay the bill in full each month. With a credit card, you are required to pay a certain amount of your balance each month. And with a credit card, you’ll have a specified credit limit; if you exceed it, you’ll be hit with fees and penalties.

Generally, a charge card has no credit limit. Purchases get approved based on your spending and payment history, financial resources and credit history. However, you are required to pay off the balance in full every month, so you must be sure you can afford what you’re buying. Since you can’t carry a balance, there is no periodic or annual percentage rate or minimum payment. If you don’t pay the bill on time, you may face late fees and other penalties.

The most well-known provider of charge cards is American Express. To use one of its cards, you must pay an annual fee, but you also may be granted the opportunity to earn reward points on purchases.

Both types of cards can appear on your traditional credit report. Using a charge card can be a good way to improve a low traditional credit score because you have to pay off the balance in full each month.

Having a high balance to pay off on your charge card will not hurt your credit score. However, late or missing payments to a charge card or a credit card will adversely affect it.