Both charge cards and credit cards can be convenient ways to pay for purchases, but they have some important differences. Here’s what you need to know about how credit and charge cards differ.
What is a charge card?
A charge card allows you to make purchases. Rather than making monthly payments on what you spend, you must pay the full statement balance by your due date each month.
Like credit cards, charge cards can come with annual fees. However, unlike credit cards, you typically won’t pay interest on purchases. This is because you aren’t carrying a monthly balance. Late fees may apply if you can’t pay the full statement balance by your due date each month. Because you must pay your charge card’s full statement balance, balance transfers are typically not allowed.
Charge cards don’t have preset spending limits, so your balance may not be part of your overall credit utilization ratio. Charge card spending could still impact your creditworthiness through payment history, though. Missed payments may have a negative impact, while consistent payments over time could have a positive effect.
While charge cards don’t have a preset spending limit, that doesn’t mean unlimited spending power. Your financial institution may set a spending limit for the card or approve purchases based on your creditworthiness, income and spending habits.
What is a credit card?
A credit card allows you to borrow up to a fixed amount, known as a credit limit. Your limit depends on factors like your income, creditworthiness and the card.
Unlike a charge card, you don’t have to pay your full statement balance each month. With a credit card, you must make at least the minimum monthly payment or you may be charged late fees. If you carry a balance, you may be charged interest.
How you use your credit card can impact your creditworthiness. For example, your balance is part of your credit utilization ratio – the percentage of your total available credit in use. Your payment history also contributes to your creditworthiness.
Main differences between charge cards and credit cards
Here are some of the key differences between credit cards and charge cards.
Credit cards allow you to pay your balance over time but you must make the minimum monthly payment. However, there is no monthly minimum payment when you use a charge card. Instead, you must pay each month’s statement balance in full by your due date.
Because you must pay your charge card’s full statement balance each month, you typically won’t be charged interest. If you carry a balance on your credit card, you may be charged interest. Certain transactions, such as cash advances, can begin incurring interest immediately on credit cards and charge cards.
Charge cards don’t come with preset limits like credit cards, but that doesn’t mean they offer unlimited spending. Card issuers may approve your purchases based on a variety of factors.
Choosing between a charge card and credit card
Charge cards and credit cards can both be useful tools, but one may be a better fit for you. Assessing your spending habits – and how much flexibility you need to maintain them – can help you choose the most convenient card for you.
Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
