A charge card is similar to a credit card — many people often use the terms interchangeably. However, they aren’t the same.
So what is a charge card? Here’s a look at what makes a charge card different from a credit card, as well as when a charge card could be the right choice for you.
What is a charge card?
A charge card is a plastic card used to make purchases to an account, just like a debit or credit card. Like a credit card, you make purchases on a charge card on credit instead of with cash.
But the central difference between a charge card vs. credit card is what you have to pay each month.
With a credit card, you can carry a balance over into the next month and get away with paying the credit card minimum payment. A charge card must be paid off in full each month.
For example, say you spend $500 in a month. If you paid with a charge card, the payment due for that billing cycle would be the full $500 balance.
But if you charged that much to a credit card, you wouldn’t have to pay the $500, just the credit card minimum. Usually, this is around three percent, so you’d pay a minimum of just $15. You would also be charged interest on the remaining balance.
Charge cards vs. credit cards: 4 major differences
- No set credit limit. While a credit card has a credit limit on the balance you can carry, a charge card won’t.
However, the charge card issuer will usually limit how much you can spend with a charge card. The spending limit is based on their estimates of what you can afford to repay.
- No interest. Since you never carry a balance on a charge card, you won’t pay interest, either.
- Not counted toward credit utilization. With no credit limit, a charge card is not counted toward your credit utilization ratio. This is a measure of how high your balances are in comparison to your credit card limits.
- Not as widely offered. Charge cards are becoming less common, and most major banks and credit issuers no longer offer them to consumers. American Express is the biggest credit card issuer that still offers charge cards.
Charge cards vs. credit cards: 6 similarities
- Annual fee. Both charge cards and credit cards charge annual fees. However, expect charge cards to have higher annual fees, similar to those charged on travel or rewards cards.
- Rewards. Several charge cards offer the chance to earn rewards, just like many common credit cards. American Express offers charge cards that earn cash back, travel, and more.
- Exclusive benefits. Charge cards often give cardholders access to unique perks and benefits. American Express cardholders, for instance, can get credits for airline fees or access to exclusive airline lounges.
- Late fees. Both charge cards and credit cards will levy a fee if you pay late. However, you can make the minimum payment to avoid this fee on a credit card. A charge card will require full payment to avoid a late fee.
- Other fees. Charge cards might have other fees that are common for credit cards, such as foreign transaction fees or returned check fees.
- Build credit. Issuers report account behavior and payment history of credit cards and charge cards to credit bureaus. A charge card can help build credit, just like a credit card — when you pay in full and on time each month.
In fact, having a charge card could even give you an edge by improving your credit mix.
When to choose a charge card
A charge card can be a smart spending tool for certain kinds of consumers. It can help keep spending under control and be a useful credit-building tool.
If you want to keep your spending disciplined
First, a charge card is a good option if you are worried about getting into credit card debt. Because your bill is due in full each month, a charge card won’t allow you to get into debt.
It places a natural limit on what you can spend with what you can afford to pay off each month. This can keep you in the mindset to purchase less and keep your balance affordable. Therefore, a charge card can help you improve your financial discipline.
However, if you do find yourself facing a charge card balance you can’t afford, don’t panic. Many charge cards have a contingency program to allow you to turn the amount due into credit you can pay in installments. For American Express customers, for example, there’s the Pay Over Time feature.
If you’re looking to build credit
Another good reason to consider a charge card is to build credit.
As stated above, a charge card can improve your credit mix — which could give your score a boost. However, it usually has a pretty limited effect.
Plus, charge card purchases don’t affect your credit utilization. So you can spend more freely, as higher charge card balances won’t drag down your credit score the same way as high credit card balances.
Where to get a charge card
If you’re interested in a charge card, take some time to comparison shop and understand each card’s terms. While there are not many card issuers that offer charge cards, some still do.
The main charge card issuer is American Express. It currently offers four charge cards:
- American Express Green Card
- Gold Card from American Express
- Platinum Card from American Express
- Premier Rewards Gold Card from American Express
Diner’s Club Charge Card is another common charge card not in the American Express family that’s widely offered.
Retailers charge cards used to be common but are now becoming rarer. Kohl’s –a retail department store – still has one, with its My Kohl’s Charge card.
If you’re an entrepreneur, you might also be able to get charge cards for small businesses.
Charge cards are not as common as they used to be, but many cardholders still prefer them. Therefore, understand how your charge card works and only spend as much as you can pay in full each month.
With responsible spending, a charge card can be a rewarding tool to make purchases, build credit, and avoid credit card debt.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|6.26% – 14.87%1||$5,000 - $100,000||Visit SoFi|
|6.99% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|6.99% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|