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

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    You may have heard the term “charge card" used interchangeably with the term “credit card," and vice versa. Despite this common misconception, charge cards are indeed distinct from credit cards.

    What is a charge card?

    A charge card is a card used to make purchases. Some charge cards have point systems and rewards, just like a credit card. But a charge card, the way it's paid, how much you can charge and how it affects your credit are a bit different from a credit card.

    What is a credit card?

    Like a charge card, a credit card allows cardmembers to make purchases and repayments. Unlike a charge card, credit cards have a spending limit that varies per cardmember. Although the cardmember is expected to make monthly payments, they can carry a balance from month to month.

    What are the differences between charge cards and credit cards?

    Based on the definitions above, charge cards and credit cards sound similar — but there are some key differences regarding spending limits, payment cycles and credit inquiries.

    Spending limit

    Charge cards often don't carry a spending limit, whereas credit cards do. Since there is usually no credit limit for charge cards, you can spend without factoring in a credit utilization ratio and how that might affect your credit score.

    Payment cycles

    Charge cards typically require the bill to be paid in full each month. If the bill isn't paid in full, the account could be closed or charged a hefty penalty fee.

    Credit cards, on the other hand, generally accept a monthly minimum payment and allow for the rest of the balance to be carried over to the next payment cycle. A minimum payment can help avoid late fees but paying any amount less than the full amount due could cause interest to be accrued on your next billing cycle.

    Credit inquiries

    A soft inquiry, or a soft credit check, is when you or an authorized party checks your credit score without being attached to a particular application. Soft inquiries don't usually affect someone's credit score. Hard inquiries are standard when applying for both charge cards and credit cards. A hard inquiry helps card issuers assess eligibility and, for credit cards, determine a spending limit. Hard inquiries remain on the cardmember's credit report for around two years and can impact your credit score.

    In summary

    Both charge cards and credit cards can enable cardmembers to make purchases, providing opportunities to accrue points and rewards along the way, depending on the card. But charge cards typically don't come with a spending limit and require the bill to be paid in full each month. Credit cards come with a spending limit and allow for minimum payments and, therefore, a balance carry-over each payment cycle.

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