The primary difference between a credit card and a charge card is that while the former lets you make minimum monthly payments, the latter does not. In addition, credit cards tend to have predetermined credit limits, whereas charge cards typically come with no preset spending limits (NPSLs). Choosing between the two boils down to whether or not you’re comfortable paying off your balances in full each month.
Charge Cards vs. Credit Cards: What You Should Know
Unlike credit cards, charge cards require that you pay off your balances in full each month.
Updated: October 21, 2024
Updated: October 21, 2024
Advertising & Editorial Disclosure
On This Page:
MoneyGeek’s Takeaways
A charge card requires that you pay your entire outstanding balance each month.
A credit card allows you to make minimum monthly payments and carry forward your balance.
Both cards report your payment histories to credit bureaus and give you the ability to build credit.
What’s the Difference Between a Charge Card and a Credit Card?
When you get a charge card, you typically need to pay off the entire outstanding balance at the end of each billing cycle. Credit cards let you do this as well, although you can also choose to make no more than your minimum payments each month and carry forward your balances. Both come with their share of pros and cons.
Charge Cards
Pros
- No preset credit limit
- Low risk of accumulating debt
- Help build credit
- Ability to earn rewards
- Don’t factor in your credit utilization ratio
Cons
- Use of charge cards has waned, as has their availability
- Typically high annual fees
- No fixed credit limits may lead to uncertainty around large purchases
- No flexibility in carrying balances forward
Credit Cards
Pros
- Can get no-annual-fee alternatives
- Help build credit
- Several credit cards offer rewards
- Tend to come with a variety of perks
Cons
- Risk of accumulating debt
- High balances may affect your credit score
- Need to pay interest on balances that you roll over
Are All American Express Cards Charge Cards?
No, not all American Express cards are charge cards. In fact, very few fit the bill. For example, American Express continues to market its Platinum Card as a charge card in some countries such as Australia and India. While Platinum Cardholders in the U.S. are required to pay their balance in full each month, a Pay Over Time feature is available on some purchases with a variable APR. This makes the Platinum Card, as well as the comparable American Express® Business Gold Card, function much like a conventional credit card.
Some American Express cards, like the Platinum Card, come with a Plan It alternative. This feature lets you split large purchases into monthly payments by paying a fixed fee and no interest charges. You may have up to 10 active plans running concurrently.
The Plum Card® from American Express for businesses qualifies as a charge card. This card gives you the option of paying your bill in full each month or of carrying forward your balance for up to 60 days with no interest. After this, a late fee applies, which is either a fixed amount or a fixed percentage of the past due amount.
American Express provides multiple credit cards with no preset spending limits (NPSLs), including the Platinum Card, the Gold Card, the Green Card and the Business Platinum Card.
Do Other Credit Card Companies Have NPSL Cards?
Some credit card issuers provide NPSL cards, whereas others may approve over-the-limit transactions on a case-by-case basis. The Spark 2% Cash Plus Card from Capital One comes with no preset spending limit. Brex offers this feature through its charge cards for businesses.
Do Charge Cards Have Limits?
The simple answer to this is yes. However, the limit is subject to change based on multiple factors. NPSL essentially refers to a credit limit that may vary even when your account is open. With the Spark 2% Cash Plus Charge Card, your credit limit is based on factors such as your payment history, spending behavior and creditworthiness.
Brex lets you choose between cards that you may pay off every day or monthly, and it determines credit limits accordingly. If you opt for the card that requires monthly payments, your credit limit is based on the balance in your Brex Cash account, the balance in your linked bank accounts or your bank statements. With the daily payments alternative, your card’s limit is directly linked to the balance in your Brex Cash account.
With a regular credit card, you find out your credit limit when you receive the credit card agreement. This limit is subject to change, but not as often as with charge cards. It can happen either when you request for an increase/decrease or if your card provider chooses to decrease it owing to factors such as missed payments, high credit utilization ratios, low utilization of credit and changes in spending behavior.
While charge cards do not affect your credit utilization, making late or partial payments on these cards may affect your credit score. Only charge what you know you can pay off in full each month to avoid interest, fees and negative marks on your credit report. -- Lee Huffman, credit card expert at BaldThoughts.com.
What Is the Purpose of a Charge Card?
A charge card can serve different purposes. You may consider getting one if you’re motivated to pay off your balances in full every month and if you wish to minimize the possibility of accumulating debt. Business owners who need to make large purchases and require flexible credit limits might benefit from charge cards for business use.
Issuers of such cards report your payments to credit bureaus. When you get a charge card in the name of your business and make your payments on time, they appear in your business credit file. This helps build your business’s credit history.
Charge cards also let you capitalize on your spending by offering rewards. The Spark 2% Cash Plus Card from Capital One offers 2% cash back on all business purchases. The American Express Platinum Card offers 5x points on prepaid hotel and flight bookings made through Amex.com. The Brex Card lets you earn up to 8x points on category-based spending.
Get a charge card only if you’re confident you can pay your balances in full each month. Otherwise, consider choosing from our list of top low APR credit cards. Our experts have put this together by analyzing over 1,600 credit cards.
Other Questions You May Have About Charge Cards
Here are other answers to other questions you might have about the charge card vs. credit card comparison.
Is a charge card and a credit card the same thing?
Charge cards and credit cards are not the same. With a charge card, you have to pay your balance in full every month. Credit cards allow cardholders to carry a balance from month-to-month. Interest is charged on balances that are not paid off before the end of the next statement cycle.
Is it easier to get approved for a charge card or credit card?
Qualifying for a charge card is typically more difficult than qualifying for a credit card. Getting a charge card requires that you have good to excellent credit and a steady source of reasonable income, mainly because issuers expect you to pay off your balances in full every month. When it comes to credit cards, you may even find alternatives if you have average credit.
Is a charge card a better pick than a credit card?
A charge card might be a better pick than a credit card if you want no preset spending limit to make large purchases. However, you need to pay your balance in full at the end of each billing cycle.
Is the Amex Platinum card a charge card or credit card?
The Amex Platinum Card is a charge card. However, its Pay Over Time feature for U.S. cardholders acts like a credit card for eligible purchases. This feature lets you carry forward the unpaid balance on eligible transactions by paying a variable APR. The card’s Plan It feature lets you split large purchases into monthly payments, and this option comes with no interest.
It’s important to note, however, that American Express assigns a Pay Over Time limit to your card, which applies to the combined total of your Pay Over Time, other Plan (referring to the Plan It feature) and cash advance balances. In addition, American Express holds the right to approve or decline a charge even if your balance does not exceed this limit.
Paying off your balances in full every month is an option, as is the case with any other credit card.
Is the Chase Sapphire a credit card or a charge card?
The Chase Sapphire Reserve Card and the Chase Sapphire Preferred Card are credit cards. Both come with variable APRs and annual fees. While you can carry a balance from month to month, the best strategy is to pay off your purchases in full every month to avoid interest charges.
Why do most NPSL cards have no interest?
Most NPSL cards are charge cards, requiring that you pay your balance in full every month, which is why they have no interest. Interest might apply to past-due balances in the form of late fees. For instance, the The Plum Card® from American Express charges a late fee of $39 or 1.5% of the past due amount, whichever is greater, if you miss your first due date. If you miss making your payment for two consecutive billing periods, the late fee increases to $39 or 2.99% of the past due amount.
Can you max out an NPSL/charge card?
Given that NPSL/charge cards come with credit limits in some form, you might face declined transactions when making expensive purchases.
Do credit cards with no spend limit affect your credit score?
Yes, credit cards with no spend limit have the potential of affecting your credit score. If you make your payments on time, you may expect a positive effect on your creditworthiness. However, a late or returned payment can have the opposite effect. When it comes to charge cards with NPSLs, these cards are excluded from your credit utilization ratio calculation through most recent versions of FICO scoring models.
Next Steps
Now that you know the difference between a charge card and a credit card, you can select one based on your specific needs. If you’re unsure about being able to pay off your balances in full each month, opting for a low-interest credit card might be a better alternative.
Compare & Review Credit Cards
Our experts routinely monitor and analyze the spending trends of consumers and businesses across the U.S. They rely on information found in the public domain and data made available by the Bureau of Labor Statistics (BLS), and they also keep an eye out for any changes in credit card APRs, fees and offers. They have reviewed over 1,600 consumer cards and 540 business cards so that you can easily find a suitable alternative.
Learn More About Credit Cards
The MoneyGeek editorial team keeps itself abreast with the latest changes in the world or credit cards so we can answer your questions quickly and efficiently. Whether you wish to know how rewards cards work or how to improve your credit score, you can trust them to guide you in the right direction.
About Doug Milnes, CFA
Doug Milnes is a CFA charter holder with over 10 years of experience in corporate finance and the Head of Credit Cards at MoneyGeek. Formerly, he performed valuations for Duff and Phelps and financial planning and analysis for various companies. His analysis has been cited by U.S. News and World Report, The Hill, the Los Angeles Times, The New York Times and many other outlets.
Milnes holds a master’s degree in data science from Northwestern University. He geeks out on helping people feel on top of their credit card use, from managing debt to optimizing rewards.
sources
Editorial Disclosure: Opinions, reviews, analyses and recommendations are the author’s alone and have not been reviewed, endorsed or approved by any bank, credit card issuer, hotel, airline, or other entity. Learn more about our editorial policies and expert editorial team.
Advertiser Disclosure: MoneyGeek has partnered with CardRatings.com and CreditCards.com for our coverage of credit card products. MoneyGeek, CardRatings and CreditCards.com may receive a commission from card issuers. To ensure thorough comparisons and reviews, MoneyGeek features products from both paid partners and unaffiliated card issuers that are not paid partners.