Charge Card vs. Credit Card: What’s the Difference?

At first glance, charge cards and credit cards work in similar ways: They both borrow money from a financial institution and expect you to pay it back in a timely manner. But the credit limits and repayment rules are notably different.

Knowing how these two cards differ will help you decide when to use them and why one may be a better fit for your needs than the other.

Charge card vs. credit card

Though they may look the same in your wallet, there are some key differences in how charge cards and credit cards work.

How a charge card works

Like a credit card, a charge card allows you to borrow money to make purchases. But unlike credit cards, charge cards do not have a pre-set spending limit. Instead, the amount is flexible, and based on a variety of factors like your credit history and spending habits.

But, with great flexibility comes great responsibility; You must pay off the balance of a charge in full every month — it is not a revolving line of credit, like a credit card. If you don’t, you could face high interest rates, such as 30%.

Like credit cards, some charge cards do come with perks like insurance coverage, and the ability to earn loyalty points.

How a credit card works

Credit cards allow you to spend borrowed money, up to a pre-set limit. You can apply to increase the credit limit, but approval is not guaranteed.

Unlike charge cards, credit cards give you the option to make a minimum payment each month instead of paying off the full balance. However, the remaining funds are subject to interest, and credit card interest rates can be high (around 20%, for example).

There are many types of credit cards available, such as rewards cards, low-interest cards and secured cards.

Is a charge card harder to get than a credit card?

In short, yes. Due to the flexible credit limits, you typically need a good credit score to qualify for a charge card. To compare, there are various credit cards available for those with bad or no credit, such as secured cards. These cards require a security deposit as collateral instead of solely relying on your credit history for approval, making them available to more people.

Credit card vs. charge card: Which is better?

There are pros and cons to both types of card. Charge cards may not have a pre-set limit, but must be paid off in full each month or be subjected to high interest rates. Credit cards, on the other hand, allow you to carry a balance, but typically have set spending limits.

In general, you should only use a charge card if you know for certain you can pay off the balance in full. If not, the higher interest rates mean you may accumulate debt quicker than with a credit card.

Charge card vs. debit card

Comparing a charge card to a debit card is similar to comparing a credit card to a debit card. The main difference is that a charge card uses borrowed money to make purchases and a debit card takes money directly from your bank account.

Unlike charge cards, debit cards have limits on how much you can spend, such as daily withdrawal limits. Plus, you can’t spend more than what you have in your account. If you do, you’ll likely face overdraft charges.

If you’re not sure you can pay off a charge card every month, you’re better off using a debit card. Debit cards have no annual fees and do not charge interest, as the money is not borrowed.