A Comparison of Charge Cards vs Credit Cards

Q: What is the difference between a charge card and a credit card?

A charge card requires you to pay your balance in full each month, while a credit card allows you to carry a revolving balance and make minimum payments over time.

Q: What are the disadvantages of a charge card?

Charge cards require full monthly payment, offering no option to carry a balance, which can strain cash flow. They often impose steep late fees and account suspension for missed payments, have limited acceptance, unpredictable spending limits, and high annual fees.

Q: Is it easier to get a charge card than a credit card?

No. Charge cards typically require excellent credit and a strong payment history, making them at least as hard — or harder — to qualify for than standard credit cards. Their approval standards focus on income, spending ability, and creditworthiness rather than revolving-balance capacity.

A Comparison of Charge Cards vs Credit Cards

Sarah Li CainUpdated June 13, 2025

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

Consumers use both charge cards and credit cards to make purchases, but there are crucial differences between the two — namely, your spending limit and monthly payment requirements.Before applying for either a charge card or a credit card, it’s a good idea to understand how each one works. Read on to learn more.

What Is a Charge Card?

Charge cards can be used to make purchases and usually have features such as the ability to earn rewards and other benefits. Traditional charge cards require their cardholders to pay off their balances immediately, typically within a certain timeframe. This means that, unlike credit cards, you won’t be able to carry a balance and pay off purchases over time. Charge cards also don’t have a preset spending or credit limit, but it’s not a card with unlimited spending, either. The amount you can spend depends on factors such as your credit history, payment history, and other financial resources. Cardholders can find out their spending limit by logging into their online account or mobile app, or by calling the card issuer’s phone number.Charge cards typically require good to excellent credit to acquire because the lender is taking a bigger risk by not setting a hard spending limit and trusting you’ll pay your bill in full each month.

What Is a Credit Card?

A credit card is a revolving line of credit that allows you to borrow funds up to a preset limit for purchases, balance transfers, or cash advances. Each month, you receive a statement showing your balance, minimum payment due, and due date. Unlike charge cards, you do not need to pay your balance in full each month. However, you’ll owe interest on any unpaid balances.Credit cards often feature rewards, such as cash back or travel points, and may include perks like purchase protection and travel insurance.Recommended: Average Credit Card Debt in 2025

Charge Card vs Credit Card

The main difference between charge cards and credit cards is your spending limit and monthly payment requirements.

Features	Charge Card	Credit Card
Wide choice of issuers	No	Yes
Requires full payment each month	Usually yes	No, though you must make minimum payments
Preset spending limit	No	Yes
Responsible for unauthorized transactions	Typically no	Typically no
Late payment fee	Yes	Yes — though you can typically avoid it by making a minimum payment

Major Differences

Charge cards and credit cards allow the cardholder to purchase items without cash. However, there are some major differences between a charge card vs. a credit card, including:

Monthly payments: You’ll need to pay off a charge card balance each month. With credit cards, you can carry a balance but are required to make a minimum payment each month.
Interest charges: Charge cards don’t have interest charges since you’re expected to pay off the balance each month. Credit cards charge interest on remaining balances.
Spending limits: You’ll be given a credit limit when you’re approved for a credit card that is the total amount you can spend. Your transaction may be denied if you reach your credit limit. In some cases, you can go over the limit, but you’ll be charged a fee. Charge cards, on the other hand, usually don’t have limits, but the card issuer may put a cap on how much you can spend based on factors such as your income, credit, and payment history.

Effect on Credit Score

Both charge cards and credit cards give you the opportunity to build your credit. However, there are differences in how your spending behavior may affect your credit score. This includes:

Payments: You could build stronger credit if you consistently make on-time payments on your charge card or credit card. Late payments are usually reported to the credit bureaus and can negatively affect your score. That’s why one of the biggest tips on building credit is paying on time.
Inquiries: Both a charge card or credit card issuer will review your credit profile when you submit an application. Doing so typically means you’ll be subject to a hard credit inquiry and could affect your score.
Utilization: Credit utilization ratio refers to the percentage of your total available credit you use. It's one of the major factors that credit scoring companies use, and if it’s too high, it suggests to lenders that you could be stretched too thin financially and could result in a lower credit score. Since charge cards don’t have a preset spending limit, it could be hard to determine your credit utilization. Some credit scoring models may not factor your charge card into your credit utilization ratio.

Pros and Cons of Charge Cards

Charge cards offer some perks that credit cards don’t. However, there are some downsides, as well.

Pros of Charge Cards	Cons of Charge Cards
Less likely to take on additional debt	Late fees may be high
No preset spending limit	Typically charge annual fees
Less impact on credit scores	Less flexibility

Pros and Cons of Credit Cards

Credit cards, when used responsibly can offer plenty of benefits, but they do have some drawbacks to consider.

Pros of Credit Cards	Cons of Credit Cards
May help build credit	High interest charges
Offer perks like fraud protection	Potential to overspend and incur more debt
Allow users to pay back balance over time	Have a preset spending limit

How to Choose Between a Charge Card vs Credit Card

Deciding between a charge card vs. a credit card will depend on your financial goals and circumstances.Charge cards prevent you from incurring interest charges. However, you’ll need to make sure you can pay off potentially high balances each month. You’ll also have to pay annual fees for the card, which could be as much as several hundred dollars.Credit cards can provide more options, with some offering rewards and others specifically for those with poor credit. If you’re concerned about overspending, a credit card could get you in hot water financially and potentially lead to derogatory marks on your credit report. Still, it can be a good way to pay off a larger purchase over time if used responsibly. Ultimately, your spending behavior will give you the best insights as to whether a charge card or a credit card is right for you. For many, a credit card may be the preferred option, because there’s generally more flexibility. You can choose to pay off the entire balance each month like a charge card, or you can carry a balance if you need some breathing room in your budget.

What Types of Companies Offer Charge Cards?

Some major retailers offer charge cards as an incentive for consumers to shop with them, though many have transitioned over to credit cards.American Express is a well-known issuer of charge cards, with its signature Gold and Platinum cards. Other startups, like Brex, offer these types of cards for businesses alongside a whole host of perks like expense tracking.As is the case when finding the right credit card, make sure to read the fine print and understand the terms before opening a charge card.

The Takeaway

Credit cards and charge cards both offer the opportunity to build credit and make cashless payments, but there are differences between the two. Charge cards don’t have interest charges since you’re required to pay off your balance in full each month. Credit cards, meanwhile, offer more flexibility because you can make the minimum payment or more. However, you could incur interest charges and accumulate debt, though you can pay off the entire balance to prevent paying any interest. This also helps prevent credit card debt.Ultimately there’s no cut-and-dry answer as to which may be right for your financial situation and lifestyle. Whichever you choose, make sure you understand your responsibilities as a cardholder and take the time to find a card that’s right for you. If you’re looking for a credit card, Lantern by SoFi makes it easier to compare credit cards by giving you an overview of each card so you can view different credit card rates at a glance.

Frequently Asked Questions

What is the difference between a charge card and a credit card?

What are the disadvantages of a charge card?

Is it easier to get a charge card than a credit card?

Photo credit: iStock/Sneksy

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About the Author

Sarah Li Cain

Sarah Li Cain is a finance writer and podcast producer focusing on topics such as credit, insurance, investing, and real estate. Her work has appeared in major publications such as CNBC Select, Forbes, Redbook, and Business Insider.

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