Charge Card vs. Credit Card: Key Differences

Both charge cards and credit cards can be convenient ways to pay for purchases, but they have some important differences that shape when it makes sense to use one over the other.

Let’s dig into how credit and charge cards differ, including tips on how to choose between them.

What is a charge card?

A charge card allows you to make purchases, similar to a credit card. Rather than making monthly payments on what you spend, however, you must pay the full statement balance by your due date each month.

Charge cards typically come with annual fees. However, you generally won’t pay interest on purchases since you can’t carry a monthly balance. Fees may apply if you can’t pay the full statement balance by your due date each month.

In most cases, charge cards don’t have preset spending limits. However, 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, payment history and spending habits.

Your charge card balance may not be included in your overall credit utilization ratio (the percentage of available credit you’re using). However, charge card spending could still impact your creditworthiness through payment history. Missed payments can have a negative impact on your credit, while consistent payments over time could have a positive effect.

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.

You don’t have to pay your full statement balance each month. Instead, 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. However, you may avoid interest on purchases by paying off your balance each month.

Credit cards may also allow balance transfers, which involve moving existing debt onto your card, typically for a fee.

The way you use your credit card can impact your creditworthiness. For example, your credit card balance is part of your credit utilization ratio. And your payment history is reported to the credit bureaus. Both are key credit scoring factors.

Credit cards vs. charge cards

There are a few key differences between credit cards and charge cards:

• Annual fees: Most charge cards have annual fees, while there are many credit cards that don’t charge an annual fee.
• Payments: Credit cards allow you to pay your balance over time, but you must make the minimum monthly payment. There is no monthly minimum payment when you use a charge card, but you must pay each month’s statement balance in full by your due date.
• Interest: You typically won’t be charged interest on a charge card since you don’t carry a balance. If you carry a balance on your credit card, however, you may be charged interest. Certain transactions, such as cash advances, may also begin incurring interest immediately on a credit card.
• Credit limits: Unlike credit cards, charge cards don’t come with preset limits, though issuers may approve your purchases based on a variety of factors.
• Availability: In general, credit cards are more common than charge cards. That gives you more options to choose from, including a wide variety of rewards credit cards that offer cash back or points for purchases.

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 your needs. For example, if you want to avoid debt and interest charges, a charge card may make sense. However, credit cards may offer more flexibility, which might be more appealing.

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.