Charge Card vs. Credit Card: Which is Better?

Although these two financial tools often seem interchangeable, they operate in different ways. Here’s what you need to know about each option and when to use each.

Updated: September 20, 2023

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In today’s lending landscape, borrowers have a variety of options at their fingertips. Among these, charge cards and credit cards stand out as some of the most popular means of accessing funds.

So, what’s the difference between a charge card and a credit card? Although these two financial tools often seem interchangeable, they operate in different ways. Credit cards provide a revolving line of credit, which you can make only a minimum payment on if you need to. Charge cards, on the other hand, require a payment in full each month. Here’s what you need to know about each option and when to use each. 

What’s the difference between a credit card and a charge card? 

Understanding credit cards

Credit cards are one of the most widely used forms of payment in the modern world. They allow users to make purchases on credit, essentially borrowing money from the card issuer. In most cases, the card issuer is a bank or credit union. 

When you open a new credit card, you are assigned a credit limit. This specifies the maximum amount you can borrow at any given time. Each month, you’ll receive a statement detailing your purchases and the minimum payment you’re required to make.

Key features of credit cards: 

  1. Credit limit: Credit cards come with a predefined credit limit that determines how much you can borrow at any given time. 

  2. Minimum payments: With a credit card, it’s optional to pay your balance in full each month. Instead, you are only expected to make a minimum payment, a small percentage of the outstanding balance, by the payment due date. 

  3. Revolving credit: If you choose not to pay your bill in full, you have the option to carry the remaining balance from one month into the next. 

  4. Interest charges: If you choose to carry your balance forward, you’ll likely have to pay interest charges on that amount.

Understanding charge cards 

While charge cards might sound similar to credit cards, they operate on a different principle. Charge cards provide a means of making purchases without a revolving credit feature. With a charge card, you are expected to pay the full balance each month, essentially requiring you to clear your debt in full by the payment due date.

Key features of charge cards: 

  1. No predetermined credit limit: Charge cards do not have a fixed credit limit, which enables more flexible spending.

  2. No revolving credit: Unlike credit cards, charge cards do not allow you to carry a balance from month to month. The full balance must be paid in full within the payment period.

  3. No interest charges: Because charge cards require the balance to be paid in full, there are typically no interest charges.

  4. Annual fees: Charge cards often come with higher annual membership fees compared to credit cards. In exchange, they offer added benefits and perks.

Credit card or charge card: Which is better?

Here’s how to decide what kind of card is right for you. 

1. Consider your financial habits

If you’re the kind of person who consistently pays your bills on time and in full, a charge card may be the ideal fit. 

Pros of Charge Cards 

  • Charge cards require you to settle your entire balance at the end of each billing cycle. If you’re already accustomed to paying your bills on time, this won’t be a challenge. 

  • With a charge card, there’s no option to carry a balance from one month to the next. This can be advantageous if you want to avoid accumulating debt and interest charges. 

  • Using a charge card encourages financial discipline, ensuring that you live within your means and don’t overspend. 

On the other hand, if you prefer a more flexible payment date, a credit card may be the better choice. Keep in mind that, since you can carry a balance from month to month, it can be more tempting to overspend with a credit card than with a charge card. But the balance-carry feature can be handy in case of emergencies. Here are some other potential benefits.  

Pros of Credit Cards 

  • Credit cards provide the freedom to carry a balance from month to month. 

  • Responsible credit card usage can have a greater positive influence on your credit score than charge card usage. That makes credit cards an attractive option if you want to build or improve your credit history.

  • Credit cards are available to borrowers with a wider range of credit scores.

2. Pull your credit score

Once you’ve considered the pros and cons of each kind of card, it’s time to check your credit report. This can help you determine which cards you’re likely to qualify for based on your creditworthiness. 

Charge cards are typically reserved for individuals with excellent credit. That’s because they have no preset spending limits, and card issuers expect full payment each month. You’ll need a high credit score to convince card issuers that you can meet these expectations. 

Credit cards, on the other hand, tend to have more lenient credit score requirements. Your credit may influence the interest rates you receive, but even with a relatively low credit score, you’ll still qualify for some basic credit cards. More premium credit cards — especially those with lucrative rewards programs like cashback, travel points, or exclusive benefits — often require good to excellent credit scores.

3. Examine fees and rewards

Charge cards often come with higher annual fees than most credit cards. These fees are typically justified by the more premium services, travel benefits, and exclusive rewards they offer. Many of these rewards cater to high-spending, frequent travelers and individuals seeking luxury experiences. Charge cards focus on providing top-tier rewards rather than a broad range of options. 

Credit cards, however, come in various categories, each tailored to specific consumer needs. This diversity means you can find credit cards that offer rewards matching your lifestyle, such as cashback on everyday purchases, travel miles, or rewards points for specific retailers. Credit cards often have more varied rewards programs, catering to a broader audience with varying preferences. 

While there are many credit cards available with no annual fees, some premium cards may charge up to several hundred dollars per year for enhanced rewards and perks. The annual fee will depend on the specific credit card you choose, your credit history, and your spending habits. 

Charge cards vs. credit cards: How do they affect your credit score?

Charge cards and credit cards each affect your credit score differently.

  • Credit utilization: Charge cards typically don’t have preset spending limits, which means issuers don’t report credit limits to the credit bureaus. As a result, charge card balances don’t factor into your credit utilization ratio (the amount of credit you’re using compared to your total credit limit). This can be beneficial because a high credit utilization can negatively impact your credit score. On the other hand, you won’t get credit for maintaining a low credit utilization rate either. 

  • On-time payments: Both charge cards and credit cards can positively impact your credit score if you consistently make on-time payments. Your payment history is a significant factor in your credit score, so paying bills promptly is crucial, regardless of the type of card you have.  

  • Credit history length: Keeping credit cards open can help you establish a longer credit history, which is another factor in your credit score calculation. Charge cards also contribute to credit history, but they may not have as significant an impact.

  • Credit inquiries: When you apply for either a charge card or a credit card, the issuer will perform a hard inquiry on your credit report. Multiple hard inquiries in a short period can temporarily lower your credit score. However, the impact is generally similar for both types of cards. 

  • Diversity of accounts: Maintaining a mix of credit accounts — such as credit cards, installment loans, and mortgages — can positively affect your credit score. Having a credit card alongside a charge card can demonstrate a diverse credit profile, potentially benefiting your credit score. 

While there are nuanced differences in how charge cards and credit cards can affect your credit score, the most crucial factor for maintaining or improving your score is responsible financial behavior. Making on-time payments and managing your credit wisely are key regardless of the type of card you use. 

Compare cards with Navient Marketplace

Whether you want to build up your credit score or get reward points for spending, Navient can help you find credit card offers tailored just for you. Just input a few details about your financial situation, and Navient Marketplace will return results for a credit card suited to your financial goals. 

Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.

Navient has partnered with CardRatings for our credit card products. Navient and CardRatings may receive a commission from card issuers. Opinions. reviews, analyses & recommendations are Navient's alone, and have not been reviewed, endorsed or approved by any of these entities. 

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