Charge card vs. credit card: What's the difference?

19.08.2024 - 16:06 / thepointsguy.com

Many people use the terms "credit card" and "charge card" interchangeably. "No preset spending limit" is sometimes thrown into the mix. And while these cards have many similarities, they aren't the same.

How you swipe your card when making a purchase won't change, but there are big differences between a credit card vs. charge card regarding your bill and your credit report. Here's a closer look at the differences between these cards.

Related: How your credit scores work

When you make a purchase, a charge card works exactly like the credit cards you're used to: you pay with the card instead of cash and receive a statement from your bank each month.

However, a charge card typically requires you to pay your bill in full each month. Not doing so can lead to significant costs, such as late payment fees and a penalty annual percentage rate (APR).

Charge cards are also known as no preset spending limit cards. However, this doesn't mean you have unlimited spending capacity. Instead, your spending limit will evolve based on your payment history, creditworthiness, relationship with the bank and other factors.

While some issuers offer the ability to carry a balance by enrolling in a feature like American Express's Pay Over Time, these cards are designed for you to pay the balance in full each month, not carrying a balance forward.

Ideally, you should pay your cards off in full each billing cycle since carrying a balance leads to interest.

There are additional differences between charge cards and credit cards, aside from the ability to carry a balance or make minimum payments.

The most obvious difference is that a charge card has no preset spending limit. A credit card has a pre-defined spending limit. You may hear this called a "credit limit." For example, if your credit card has a credit limit of $10,000, you can't spend past that until you pay your bill.

A charge card, with no preset spending limit, has no fixed value for your spending capacity. As explained above, your spending limit fluctuates.

However, this doesn't mean you have a free pass to spend irresponsibly. Even with a charge card, you should only make purchases you know for certain you can afford.

Your credit card will clearly tell you the interest rate. You'll pay interest on any balance you carry from month to month. This is your APR, which can be a fixed or variable rate.

Charge cards, on the other hand, are designed for full payment. You may receive an offer to enroll in a payment plan, allowing you to carry a balance and pay the APR outlined in the offer. Barring this exception, your card issuer expects you to pay 100% of your monthly balance.

If you don't, you could encounter several adverse outcomes:

Thus, you may not find clearly