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

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. Cardmembers are expected to pay the full balance each month. They cannot carry a balance from month to month, as charge cards typically do not allow for revolving credit. Failure to pay the full balance may result in penalties or restrictions on the card’s use.

What is a credit card?

A credit card allows cardmembers to make purchases and repayments. Credit cards have a spending limit that varies per cardmember. Cardmembers are expected to pay the required minimum monthly payment by the due date.  However, any remaining balance that is not paid off in full may accrue interest, which will be added to your next billing cycle.

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

Cardmembers are required to settle the entire balance every month. They are not permitted to carry over a balance to the next month, as charge cards generally do not support revolving credit. If the full balance is not paid, it may lead to penalties or limitations on the card’s usage.

Credit cards, on the other hand, generally require that the minimum monthly payment is paid by the due date. The remaining balance is carried over to the next billing cycle. Paying the required minimum monthly payment by the due date each month will help avoid late fees, but paying any amount less than the full balance could cause interest to be accrued on your next billing cycle.

Credit inquiries

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 to carry over each billing cycle.