What Is a Charge Card?

Find out whether a charge card can benefit you.

Although not as common as credit cards, charge cards are another convenient payment option that you can keep in your wallet. In the event you don’t know much about charge cards, you might be wondering “What is a charge card?” or “How does a charge card work?” Simply put, a charge card is a type of electronic payment that doesn’t charge interest but must be paid off in full every month.

Due to its unique characteristics, a charge card isn’t a good fit for everyone. Keep reading to find out everything you need to know about this type of payment. Then you’ll be able to decide if it’s a good fit for you.

Here’s a quick preview of what you’ll find in this guide to charge cards.

What Is the Difference Between a Charge Card and a Credit Card?

Although charge cards and credit cards are both small plastic rectangles issued to consumers to pay for goods and services, they function in different ways. Credit cards generally allow you to make purchases up to a preset spending limit with the option to carry a month-to-month balance. To keep your account in good standing, you’ll need to pay at least the minimum payment due. Additionally, you’ll likely owe interest if you don’t pay your balance in full.

Charge cards do not include a preset spending limit and generally do not allow you to carry a balance from one billing cycle to the next. As a result, interest charges do not apply.

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Both types of cards influence credit scores and generally include late fees. But the inclusion of rewards and annual fees will vary by the card issuer.

Here’s a side-by-side comparison of the features you can expect from charge cards vs. credit cards:

Charge Cards vs. Credit Cards
Card FeatureCharge CardCredit Card
Includes an annual percentage rateNo, not unless card features an option to pay over timeYes
Requires you to pay the balance in full each billing cycleYes, unless card allows you to pay over timeNo
Includes a preset spending limitCard by card basis, typically noYes
Affects credit scoresYesYes
Includes late feesYes, but can vary by card issuerYes, but can vary by card issuer
Includes an annual feeVaries by card issuerVaries by card issuer
Includes rewardsDepends on card issuerDepends on card issuer

Check Out: Best Balance-Transfer Credit Cards

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What Are the Benefits of a Charge Card?

Before you decide to open an account, it can be helpful to examine how a charge card could benefit you. Here are some advantages to consider.

No Preset Spending Limit

In case you’re wondering “Do charge cards have a limit?” the answer is typically no. Charge cards do not have a preset spending limit like credit cards. But that does not mean that your spending power is unlimited. Rather, charge card issuers might review factors like spending patterns, payment history, credit history and financial resources to continue approving your purchases. Every creditor is different, so make sure to find out upfront about how spending limits are handled.

More Control Over Debt

In general, charge cards require you to pay off your balance each month, which means no interest. Plus, you won’t be tempted to charge thousands of dollars and justify your overspending with the fact that you can pay it off over a number of years like you can with a credit card. Instead, a charge card can serve as a tool that gives you the spending power you need with the understanding that you’ll owe it all back within mere weeks.

Perks and Rewards Are Available

Just as credit cards often feature valuable perks and rewards, so do charge cards. Here are some examples:

  • Redeemable points for airline miles or hotel stays
  • Travel insurance
  • Extended warranties
  • Access to special event tickets
  • Roadside assistance

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What Are the Drawbacks of a Charge Card?

As with any financial product, charge cards have drawbacks, and it’s important to carefully consider them. Here’s what you need to know.

Late Fees Apply

Late fees apply to charge cards just like they do to credit cards. When you’re 30 or more days late on a payment, you can expect a late fee and possible negative credit reporting. The amount of the late fee depends on the card issuer, but it could be as much as $28 for the first occurrence and up to $39 if you make another late payment in the following six billing cycles.

Plus, effective Jan. 1, the Consumer Financial Protection Bureau raised the maximum first-time late fee to $29 and subsequent late fees in the next six billing cycles to $40. But it’s up to the card issuer whether to raise its current fees, and the issuer must give you 45 days’ notice of the change.

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Read: How To Tell When That Store Credit Card Is a Bad Idea

Annual Fees Might Apply

Depending on the card issuer, a charge card might include an annual fee. Annual fees can be quite steep, ranging from just under $100 to over $500. But some card issuers waive the annual fee for the first year.

Whether or not paying an annual fee will be worth it depends on what type of rewards and benefits the charge card has. As long as those perks outweigh the annual fee, there’s a good chance the charge card could be worth your while.

There’s Still a Risk of Overspending

Most of the time, a charge card won’t allow you to carry a balance, which means you have to pay it off in full within the current billing cycle. But miscalculating and overspending could leave you in debt and unable to pay off your balance. Of course, in that event, the card issuer will likely issue a late fee and might even revoke your card if you aren’t able to resolve the balance in a timely manner.

Fewer Card Options Are Available

There’s no comparison between options for credit cards and charge cards. The main charge card issuers are Diners Club and American Express, and each issuer only offers a few options. In addition, you might not even be able to get approved unless you have a high credit score.

Learn More: What Is a Debit Card?

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Does a Charge Card Affect Your Credit Score?

Yes, just like credit cards, charge cards do affect your credit score. Practicing responsible habits, such as paying your charge card balance in full and on time, will benefit your credit score. Pay late and your credit score will likely suffer.

Another way charge cards can affect your credit score is by reducing your credit utilization rate, or the amount of total available credit you are using, which is a key factor in credit scoring. As a rule, creditors and lenders like to see credit utilization ratios under 30%. A credit utilization rate is not calculated on charge cards like it is on credit cards, so making a large purchase on a charge card won’t increase your credit utilization rate at all.

See: Manage Your Money Stress With No-Frills Credit Cards

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Is a Charge Card a Good Choice?

Whether a charge card is a good choice depends on a variety of factors. For example, someone who has just started building credit or has less-than-stellar credit might not be able to get approved for a charge card. Charge cards are generally reserved for those whose scores fall in the “excellent” range.

Also, because charge cards do not have a preset spending limit and generally do not allow you to carry a balance, you could easily spend more than the amount you can pay off within the billing cycle. And failing to pay off the entire balance as agreed is likely to result in the credit card issuer reporting the negative information to the credit bureaus.

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A charge card could be a good fit if you are able to use the card responsibly and within your financial means. Charge cards can allow you more flexible spending power than credit cards, as well as a way to add positive history to your credit file. Plus, you can score some nice rewards and benefits.

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Editorial Note: This content is not provided by American Express. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone and have not been endorsed by American Express.

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About the Author

Cynthia Measom is a Texas-based writer specializing in finance, business, parenting and education. With almost a decade of online writing experience, her work has appeared on websites such as Chron.com, The Bump and The Motley Fool. Measom received a Bachelor of Arts in English from the University of Texas at Austin.