7 Important Ways Charge Cards are Different from Credit Cards

If you have strong credit and responsible borrowing habits, a charge card might work for you.
Last updated May 4, 2023 | By Jennifer Calonia
Customer paying a bill at a cafe with a charge card

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You likely already know the difference between debit and credit cards, but charge cards are another payment option you might not be familiar with.

Although the phrase “charge card” might sound like an outdated term, they’re still plenty popular. American Express is one of the largest charge card issuers, though it offers a range of credit card products, too, of course.

If you’re wondering whether a charge card is better for you, learn what a charge card is and how it differs from a traditional credit card.

What is a charge card?

A charge card looks and feels the same as a standard credit card. It has a card network logo on the front, and your name and card number is marked on the card. And just like a credit card, you can use a charge card to borrow money toward purchases in-store, over the phone, or online.

When your card statement is due, you’ll repay what you borrowed in full every month. Generally, charge cards don’t have a pre-set spending limit, which gives cardholders flexibility when it comes to purchasing power.

7 key differences between a charge card vs. a credit card

In terms of how you actually use the card and its purpose, a charge card and a credit card work similarly. However, there are significant differences outside of the surface commonalities you should know about.

1. Charge cards don’t have a spending limit

With a charge card, you won’t encounter a hard credit limit like you would with a credit card. Instead, you’re issued a card with no pre-set spending limit — but that doesn’t mean you can rack up never-ending purchases on your card.

Having no pre-set spending limit isn’t the same as having access to unlimited spending. Based on your card use, credit score, and payment habits, your issuer may adjust your purchasing power on the card, if needed.

2. Charge cards require you to pay in full

Using a charge card is beneficial if you enjoy the convenience of having accessible credit whenever you need it. But a major caveat is that you’ll need to repay 100% of your monthly billing statement in most cases. This can be a big surprise to credit card users, who may be used to paying their balance off in smaller increments over a number of months.

American Express does offer eligible cardholders a “Pay Over Time” feature, which charges interest to extend repayment for some purchases over a period of time — essentially allowing you to pay off your charge card as you would a credit card. However, this feature may not be accessible for all customers or purchases.

3. Charge cards usually have no APR

Interest rate charges can make the cost of a credit card soar and plunge you deeper into debt. The average credit card interest rate, according to the Consumer Financial Protection Bureau, is 17.2% APR.

Charge cards, however, don’t incur interest charges since you don’t typically carry a balance into the following statement cycle. If you fail to repay your entire balance every month, however, your card issuer may apply additional charges and fees or suspend your card.

4. Most charge cards have an annual fee

In addition to any penalty fees you’ll incur if you don’t pay your card in full each month, charge card issuers typically charge their users an annual fee. Some cards have an annual fee of around $100, but they can often be as high as $500 or more. The fabled Amex Centurion Card, which is a charge card, reportedly incurs a $2,500 annual fee.

Although many premium credit cards also often charge an annual fee, you’ll likely have an easier time finding a credit card with no annual fee.

5. Charge cards may require better credit

Since charge cards provide a generous amount of spending flexibility, you’ll usually need to have excellent credit to qualify.

From the card issuer’s perspective, if you have a strong credit history and demonstrate positive borrowing habits — as well as meet income requirements — you’re seen as a lower-risk borrower.

6. Charge cards could affect your credit differently

A charge card could have a different impact on your credit than a typical credit card. For instance, your credit utilization ratio makes up 30% of your FICO score. Credit utilization compares the percentage of credit you’ve used with the amount of available credit you have.

However, since charge cards don’t have a pre-set credit limit, FICO doesn’t include charge card utilization into your score. This could mean that high amounts of monthly charge card debt aren’t factors against you, depending on the scoring model being used.

7. Fewer issuers offer charge cards

Researching for a traditional credit card can be intimidating due to the many card options and programs available. You can find credit cards at brick-and-mortar banks, credit unions, retailers, and other financial institutions.

Charge cards are more rare in the market. The list of American Express charge cards includes:

Outside of American Express cards, charge cards are also available through Diners Club, which is the original issuer of the first charge card. According to Diners Club, its options are particularly beneficial for business professionals and corporations.

You might find charge cards from smaller institutions, but credit cards are usually offered more readily.

How to decide if a charge card is right for you

A charge card might make sense for your spending needs if you’re a responsible card user overall. Having no hard pre-set spending limit gives you the freedom to tackle unexpected purchases head on without worrying about exceeding a credit limit or affecting your credit utilization ratio.

The requirement to pay off your balance each month could even act as a self-imposed spending restriction. For example, if you know you need to repay your entire statement, you might crunch the numbers to find that you can only afford to spend $1,000 per month on your card. This can help you avoid overspending beyond the amount you can reasonably pay back.

But the opposite scenario is also a risk: If you spend recklessly and don’t have the means to repay it, you’re in for extra fees and more debt. Before applying for a charge card, consider your spending habits and whether you’re financially equipped to carry one.

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Jennifer Calonia Jennifer Calonia is a native Los Angeles-based writer and editor with eight years of experience in personal finance. She's passionate about helping others pay off debt, navigate family finance, and use rewards credit cards, responsibly. She's been featured on Forbes, The Huffington Post, Business Insider, Credit Karma, Nerdwallet, and more. To find more information about her work, visit JenniferCalonia.com.