Finance Credit Cards

What is a Charge Card How Does a Charge Card Work?

What is a Charge Card How Does a Charge Card Works?
What is a Charge Card How Does a Charge Card Works?

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Your purchasing habits will change as you grow older, both in buying large and small items. You can make most small purchases with the cash in your wallet or pocket. When it comes to larger purchases, adults tend to use plastic cards. It is common for a clerk to ask a customer whether their card is a credit card or a debit card. The amount might be paid with a check from another customer.

You can carry a balance on a credit card but not a charge card. Rolling debt over from month to month defines the difference between credit and charge cards. There is no option for that with traditional charge cards; you must pay off the balance every month in full. A credit card lets you pay over time, usually with interest, for purchases you make.

The use of charge cards is quickly becoming a thing of the past. In addition, some (but not all) cards now allow you to make payments over time. There are, however, some benefits to using a charge card.

There are many options available to businesses when it comes to payment and banking. Even though charge cards are one of the less-known forms of payment, they can prove extremely beneficial to your business. This article aims to explain what a charge card is, its advantages and disadvantages, and how it differs from a credit card for businesses.

What is a Charge Card?

What is a Charge Card?
What is a Charge Card?

It is a credit card that requires full payment every month. There is no set spending limit like there is on a credit card. A purchase is approved instead based on a person’s financial resources, credit history, and spending and payment history. A balance on a charge card must be paid in full by the due date to avoid interest or penalties. Depending on the card agreement, you may be charged late fees and penalties for not paying the bill on time.

Many charge cards offer welcome bonuses, travel perks and other rewards, but certain features must be found on a credit card. A credit card has a credit limit and enables users to carry a balance at an agreed-to-interest rate. You’ll only see introductory 0% APR offers when comparing credit cards.

Some charge cards allow you to rotate a portion of your debt. For example, American Express offers flexible payment options to eligible cardholders, allowing them to make payments over time. Charge cards are best for those who pay in full monthly and are prepared to incur finance charges if they carry a balance.

How Do Charge Cards Work?

The procedure for swiping or inserting your card to make a purchase is the same for a charge card and a credit card. However, you may need to adjust your budget and get into a routine when paying the bills.

A charge account’s entire balance must be paid each month. If you fail to pay off a large balance, you may have to pay a large penalty. A late fee of three percent will apply when you pay your credit card bill after its due date, so a missed payment on a $5,000 (Read: Credit Cards with $5000 Limit Guaranteed Approval) bill will cost you at least $150.

A charge card is often carried along with a traditional credit card by consumers who use charge cards. It is beneficial to have both. When you select the right card for each purchase, you may earn rewards more quickly, while diversifying your spending will prevent your accounts from running up large balances.

Those looking to make large purchases can benefit from charge cards since they do not have a predetermined spending limit. However, credit issuers will carefully monitor overspending by cardholders to ensure they maintain a good credit history.

Pros and Cons of Charge Cards

Using a charge card has advantages and disadvantages, as with any financial product. Some consumers may appreciate a charge card, but others may not find it worthwhile to pay the annual fee.

Pros of Charge Cards

  • Charge cards help avoid credit card debt spirals since they must be paid in full each month.
  •  The cardholder does not have to worry about “maxing out” their charge card since there is no preset spending limit on charge cards.
  •  Charge cards have no interest fees, although late payment fees can be high.
  •  It’s possible to earn double or triple points on dining and travel using charge cards (which makes them an excellent option for business travellers).

Cons of Charge Cards

  • Several credit and debit cards do not charge annual fees, while many charge cards do.
  •  Only a few issuers offer charge cards, so there are often fewer choices than there are with credit cards.
  •  Your credit history will be affected if you make late payments on your credit cards, too. Unlike late credit card payments, consistently late charge card payments can negatively affect your credit score.
  •  A late fee applies if you fail to pay the entire balance (with a credit card, you can usually pay the minimum payment without a late fee).

Benefits of Charge Card

It’s important to understand all the benefits of charge cards if you’re wondering why anyone would get one that doesn’t allow you to carry a balance. All credit card issuers offer the major perks of these cards. However, some benefits vary from card to card based on which you apply.

Potential for Rewards

Charge cards often offer rewards programs like credit cards. You may earn valuable Membership Rewards points by using a charge card from Amex, for example, which can be redeemed for gift cards, statement credits, travel through, or points transfers to Marriott and airline partners.

It is possible to earn bonus points on some charge cards once a year, while others allow you to earn unlimited points. A welcome bonus may also be available during your first year of membership, although there might be a minimum spending requirement.

Potential for Perks

Depending on the issuer, a charge card could qualify you for several perks. There are various travel-related benefits, such as access to airport lounges or fee credits toward Global Entry or TSA Precheck memberships. Charge cards often offer perks like statement credits, travel insurance, and purchase benefits that are not available with other credit cards.

Avoids Debt

Using charge cards does not allow users to accumulate credit card debt. This is also a benefit of debit cards. You are more likely to build positive credit habits and stay on track with your spending when you cannot carry a balance month-to-month in a pinch.

Builds Credit

Lastly, we discussed how charge cards help build your FICO and VantageScore credit scores. Charge cards won’t affect Your credit utilization rate, but your payment history will be used to build a long-term positive credit history.

What Issuers Offer Charge Cards?

There have been a lot of changes in the financial sector since charge cards were phased out and replaced by credit cards. Among the major credit card providers, American Express offers cards with flexible spending limits, such as the Platinum Card® from American Express and the American Express® Gold Card. Many people, however, argue that those cards’ Pay Over Time feature makes them no longer real charge cards. Getting a business credit card from Capital One Spark Cash Plus is also possible.

Do Charge Cards Build Credit?

You can build your credit score wisely using both charge and credit cards. Charge cards, on the other hand, don’t have a credit limit and, as a result, do not consider credit utilization as they do with credit cards. The credit and payment history of your charge cards will not impact your credit score.

Charge cards are an important part of establishing credit because they build your payment history, which is crucial to your FICO score. Your credit score needs a good credit history, so cancelling a credit card can harm your credit score if you have been using a charge card for several years.

Furthermore, charge cards help build up your credit mix, another factor affecting your credit score.

The fact that charge cards require you to pay your credit card balances in full each month means that charge cards have no bearing on your credit utilization rate- the second most important factor in determining your FICO score.

Credit bureaus report your credit and payment history to charge cards, regardless of how you use them. Your credit report will look better if you make on-time payments and use your charge cards responsibly.

How Do Charge Cards Affect Your Credit Score?

You will have your payment history reported to Equifax, Experian and TransUnion (Read: 7 Best Credit Cards That Pull TransUnion) regardless of whether you use a charge or credit card. Charge cards can boost your credit score if you maintain responsible habits, but their impact differs from a credit card’s.

You will be assessed on your credit score based on various factors, including your payment and credit history. Charge cards can be a great habit builder for a good credit score if used as intended and paid off in full every month.

Charge cards can affect your credit score in a few different ways depending on your credit utilization, which is the debt ratio to available credit. A credit score has a factor of 30% for FICO and 23 percent for Vantage Score.

The main disadvantage of charge cards is that they are not revolving accounts with rolling balances, nor do they have credit limits. This is why VantageScore and the newer versions of FICO do not include charge card balances in their scoring models.

Charge cards with high balances are unlikely to impact your credit utilization ratio, which can help you when purchasing a big item. Use a charge card if you plan to spend $10,000, for instance, instead of a credit card with a limit of $12,000 if you want to spend that much.

Charge Card vs. Credit card

Charge cards differ primarily from credit cards because they don’t have set spending limits. While they are quite similar, a credit card is not.

If you pay your charge card in full each month, you can spend as much as you like on your card. Business charge cards that are not paid on time can have major consequences, including the reporting of the business to credit bureaus and potential impact on credit score. It is rare to find a charge card with a 60-day payment period.

Key Differences Between Charge Cards and Credit Cards

Here’s a side-by-side comparison of these card characteristics.

Spending limit

When you use a credit card, you can only spend a certain amount before paying. Unlike a debit card, a charge card does not specify a maximum spending amount. Nevertheless, it does not mean your credit card would be accepted to purchase a superyacht. There is indeed a maximum amount you can charge, but that number changes according to how you spend.

Payment option

The charge card requires that you pay the entire balance on or before the due date each month. You may be charged late fees, have your card suspended temporarily, or even close your account if you fail to do so. Credit cards allow you to carry a balance over several billing cycles. 

If you make the minimum payment each month, your account will remain in good standing. It is possible to carry a balance on some charge cards after enrollment. You can carry a balance across billing cycles with the Platinum Card® from American Express, letting you use it as a credit card without a spending limit.

Card selection

The number of credit card options is exponentially greater than that of charge card options. Only some card issuers offer charge cards in addition to credit cards. 

There are a variety of no preset spending limit (NPSL) Amex cards (although they don’t like it when you call their products charge cards). Small businesses can use Capital One Spark Cash Plus, the company’s small business credit card. These two sources issue bank charge cards.


Charge cards and credit cards have standard fees for late payments, returned payments, and cash advances. Foreign and annual transaction fees may also apply depending on your chosen card. Charge cards, however, don’t accrue interest because you have to pay off your balance each month, unlike credit cards.

Charge CardCredit Card
Available OptionsThe options available are limitedIt is widely available
Limits on SpendingThere may be no limits on itCard types and credit history determine the limits
Eligibility and FeesApplicants may have to meet strict eligibility requirements, including earning minimums, and fees may be high.Various eligibility options and annual contributions
Plan of RepaymentMake sure you pay back every month in fullMinimum monthly repayment – remainder can be rolled over (interest and charges apply).
The PenaltiesThere is a possibility of late payment penaltiesThere is a possibility of late payment penalties
Key Differences Between Charge Cards and Credit Cards

Pros & Cons of Credit Card vs Charge Card

Charge and credit cards offer advantages and disadvantages, making them better suited to different customers’ needs. The following is a quick summary of some of the pros and cons of credit and charge cards. If you’re unsure, you need help determining.

Credit CardIt is easy to use and accepted worldwide.

You can spread the repayment cost over a period of time.

A wide range of banks and credit card providers offer this service.
Payments that aren’t cleared may incur interest and penalties.

A card’s spending limit depends on its credit history and type.

A cash advance fee or foreign transaction fee may apply.
Charge CardThere may be no spending limit set for you.

There are a variety of entry-level credit cards offered, including lower-cost, simpler options, and prestige cards.

There are some cards that come with luxury perks.
The annual fee on some cards may be high.

There are likely to be minimum salary requirements.

You’ll have to pay monthly or you’ll be penalized.
Pros & Cons of Credit Card vs Charge Card

Which One Should You Choose?

Credit and charge cards have several differences to consider when choosing one. The following keywords should be kept in mind:

Personal Spending Habits

Your spending habits can determine the type of payment card that is right for you. You are better off with a credit card if you carry a balance from month to month since credit cards allow for revolving balances and offer more payment flexibility. Charge cards, however, do not allow for revolving balances, so they can help you avoid accumulating debt since you pay off your balance in full every month.

Financial Goals

You can also choose between a credit card and a charge card based on your financial goals. A charge card may be the better choice to maximize rewards and access exclusive benefits and services. Using a credit card may be more advantageous if you want to improve your credit score or manage debt due to its flexibility in payment terms and ability to help you build credit.

Fees and Interest Rates

The fees and interest rates associated with each type of charge card should also be considered when making a charge card payment. There are usually higher annual fees on charge cards than on credit cards, but unpaid balances are not charged interest. The fees associated with credit cards may be lower, but interest is charged on unpaid balances, which can accrue over time.


Can I Earn Rewards with a Charge Card?

Many charge cards offer rewards programs which is also called as Rewards Credit Cards that allow you to earn points, miles, or cash back (Read: Best Cash Back Credit Cards) for purchases that can be redeemed for different benefits.

Are Charge Cards Only Offered by Specific Issuers?

There has been a significant decline in the use of charge cards among financial institutions. There is a limited number of issuers offering charge cards because of this.

 What is the Credit Limit for a Charge Card?

A charge card does not typically have a set credit limit since the balance must be paid monthly. Depending on the spending patterns of individual cardholders, some charge cards have spending limits.

How Do Charge Cards Differ to Credit Cards?  

Charge Cards do not have pre-set spending limits. Every month, you must pay off the balance on your Card. There is a set spending limit on a credit card. The credit card offers you the option of paying off your balance in full each month or making monthly payments. You have to pay at least the minimum amount, and interest will be charged if you don’t pay the whole amount.

What are the Drawbacks of Using a Charge Card?

Charge cards have the disadvantage of requiring a full repayment every month, which can be problematic for people with fluctuating incomes or unexpected expenses.

About the author

Vishal Agrahari

Vishal Agrahari is an experienced content writer and financial expert. With his creative and technical expertise in finance and credit cards, he creates content on AquilaResources that is both engaging and useful for readers. He brings a strong background in finance and credit cards that make bring authenticity to his content along with an interest in research to every project he works on.

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