The terms “charge card” and “credit card” seem interchangeable. After all, you can take both out of your wallet and use them to buy whatever you want. Plus, both types of cards can affect your credit score.
However, charge cards differ from credit cards in that they do not allow balances to be carried and must be paid in full each month. Charge cards also do not have preset spending limits, making them attractive to consumers who want to avoid debt but also want strong purchasing power. In fact, these features are one of the reasons why the global charge card market is projected to grow from $2.02 billion in 2024 to $2.27 billion by 2028.
But do charge cards affect your credit score in the same way that credit cards do? In most cases, they do. The biggest difference is that charge cards don’t have preset spending limits, so they don’t affect your credit utilization ratio.
The difference between charge cards and credit cards
Charge cards and credit cards work similarly when it comes to making purchases, but there are some key differences to keep in mind when weighing the two options.
| Charge Card | Credit card | |
|---|---|---|
| Outstanding balance | You pay in full every month | The minimum monthly payment. If you carry a balance, interest will accrue. |
| Interest is charged | none | Average 20.78% |
| Set spending limits in advance | none | Issuers determine credit limits based on creditworthiness and other factors, but secured cards usually have limits equal to the amount of the security deposit. |
| Annual Fee | Usually, yes. And it can be a significant amount. | sometimes |
| Minimum Credit Score | Often 670 or higher | Find a credit card for every credit level |
Charge Card Example
The most common charge cards today are business cards such as the Capital One Spark Cash Plus, Ink Business Premier® Credit Card, BILL Divvy Corporate Card and Brex Card.* Gas cards such as the BP Business Solutions Mastercard and Shell Fleet Plus Card are also accepted as charge cards.
American Express no longer uses the term “charge card” for many of its rewards cards, but it still offers cards with no limits. You can choose to pay your bill in full each month or take advantage of the option to pay over an extended period with interest. Some of these American Express cards, such as the Platinum Card® from American Express and the American Express® Business Gold Card, have high annual fees, but many of the credit cards with limits also have annual fees.
How Charge Cards Affect Your Credit Score
If used properly, charge cards can help you build credit in much the same way as credit cards.
Charge cards don’t affect your credit utilization rate
Charge cards don’t have a preset limit, so they don’t affect your credit utilization ratio, or how much of your credit limit you’ve used.
If you use a charge card for big-ticket purchases, this is good news for you. Making a big purchase on a credit card can bring you closer to your credit limit and negatively impact your credit utilization ratio. As a result, you risk hurting your credit until you pay off the account. However, paying the same amount on a charge card doesn’t affect your credit utilization, and therefore doesn’t affect that portion of your credit score.
A word of reminder: While utilization ratios aren’t affected, paying your cards responsibly does affect your credit score. Make your payments on time and keep your balance within your means to pay in full each billing cycle.
Are charge cards a better option for credit?
Charge cards don’t impact your credit as much as credit cards do because they don’t affect your credit utilization ratio, so as long as you make your payments on time and treat your cards responsibly, charge cards are better for your credit.
Payment history is the most important factor in both your FICO credit score and your VantageScore. Paying your bills on time, every time, helps your score, whether you pay with a charge card or a credit card. And unlike most rent, utility, cable, and cell phone bills (which must be paid in full, like installment loans), charge cards are regularly reported to the credit bureaus, so they show a good payment history. So paying your bills on time helps your score, whether you pay with a charge card or a credit card.
However, keep in mind that the big perk of a credit card – no credit limit – can be risky, especially if you have a tendency to make impulse purchases or overcharge beyond your ability to repay, so it’s important to know your payment limits and spend within them.
Conclusion
The type of card you need is a personal choice. There are excellent credit cards and charge cards that meet a variety of rewards, budgets, and lifestyle needs. To decide between a charge card and a credit card, you need to decide whether the stricter spending requirements of a charge card fit your budget and whether you can stand the freedom of not having a preset spending limit.
Credit cards, on the other hand, have credit limits that are meant to help you keep your spending in check, but if you make purchases on your credit card that are close to your credit limit, your credit score could be lowered.
Both types of cards can help your credit, so be sure to consider everything a particular card has to offer when comparing your options and deciding. If you need help narrowing down your choices, check out Bankrate’s CardMatch™ tool for customized recommendations.
*Information about the Brex card has been collected independently by Bankrate.com. Card details have not been verified or approved by the card issuer.
