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Though these two terms are sometimes used interchangeably, charge cards and credit cards are not the same. In fact, there are differences between charge cards vs. credit cards that can change your cardholder experience significantly.
While a charge card could be considered a type of credit card, charge cards come with some game-changing features that potential cardholders need to understand before the apply for one.
As such, we’ve compiled a comprehensive guide to navigating the charge card vs. credit card question. Here is your go-to resource on understanding the difference between a charge card and a credit card.
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Before we dive deep into the details on charge cards vs. credit cards, let’s first define what a charge card even is in the first place. The simplest charge card definition you’ll be able to find—a card with no spending limit—gets the idea across, but it also glosses over a fair amount of details. Of course, we will get into the details in due time by delineating the differences between charge cards and credit cards. But, for now, keep this basic charge card definition in mind.
Now that you’ve got a general idea of a charge card definition at your disposal, it’s time to start addressing the question at hand—how to distinguish between charge cards vs. credit cards. As we run through the five ways that charge cards differ from credit cards, you’ll start to get a more thorough idea of what charge cards are in and of themselves.
Credit card users who don’t pay their balance off in full at the end of the month know they’ll get hit with paying interest on the balance, but making a minimum monthly payment on time is all that’s required to keep a typical credit card account in good standing. A major difference between a charge card vs. a credit card is that, with a charge card, you’re required to pay the balance off in full each month.
This is an important distinction for small business owners considering a charge card instead of a credit card. With a credit card, if cash flow is tight one month, you do have the option to make just the minimum payment. There’s no option like that with a charge card, though—if you don’t pay off your balance in full, you’ll risk damaging your credit score and face heavy late payment fees.
Late fees on charge card balances can feel pretty painful. But don’t forget that, unlike with a credit card, you’re not supposed to carry a balance at all on a charge card. Instead, you’re meant to pay it off in full at the end of each billing cycle.
American Express, which has the lion’s share of charge cards in the United States, charges $25 the first time you’ve got a late payment on your charge card. This rises to $35 for the next late payment within the following six billing cycles, and then to $35 or 2.99% of the outstanding amount if you’re late with two or more payments in a row.
Compared to American Express’s regular credit cards that come with a late payment fee of the lesser of $25 or your minimum payment amount, charge card late fees are significantly more expensive.
These first two differences highlight just how far apart charge cards and credit cards can be, especially when it comes to when and how you pay off your balances.
Another difference between a charge card vs. a credit card that small business owners should be aware of is that charge cards don’t charge interest.
Yup, you heard that right.
Charge card borrowers have to borrow money interest-free—as long as you pay off the noted balance before your next statement date. This goes hand-in-hand with the charge card rule of not carrying a balance: after all, why set an interest rate for balances you’re not supposed to carry. This feeds from the fundamental difference between charge cards vs. credit cards: charge cards assume that you will pay you spending off in full every month, and will base most of the card experience off of this assumption.
Maybe the most appealing benefit of a charge card over a credit card is that a charge card doesn’t have a spending limit—while a credit card does.
This doesn’t mean you can—or should—swipe that charge card in a spending frenzy. Your lender could always impose some boundaries on your spending. But not having a pre-set spending limit does let small business owners seize time-limited opportunities that require immediate access to cash.
Instead of waiting for a loan approval, business owners with charge cards can immediately purchase the inventory or supplies they need to complete a large rush job. They then pay off the balance in full at the end of their billing cycle.
With a credit card, you can only spend up to your pre-set credit card limit, usually determined by your income and credit score. To increase your credit card limit, you’ll need to contact your lender for a limit increase. This could mean re-qualifying by providing up-to-date income verification, plus authorizing a new credit check.
Another difference between a charge card and a credit card: qualifying for a charge card requires a stronger credit score than you’ll usually need for a credit card, so it might work best for creditworthy borrowers. With no preset limit, the lender wants to minimize their risk of borrowers defaulting—so they’re going to pay particular attention to your credit score.
Once you have a charge card, make sure to stay on top of payments, or else you might find your credit score taking a beating.
Now that you’ve got a grasp on what makes a charge card different from a credit card, you got an idea of who your winner is in the charge card vs. credit card showdown. If charge cards won out for you, it’s smart to look into the details on three of the very best charge cards available to business owners:
The first on our list of the best charge cards out there is the AMEX Plum card.
This charge card comes with the best of both worlds—it offers all the perks of a charge card accompanied by the ultimate payment flexibility of the longest payment grace period on the market. That’s right—even though the Plum is a charge card, you’ll still be able to take some time on your payments—exactly 60 days from your statement closing, to be exact.
Even better, if you decide to pay your statement balance early—or within 10 days of your statement closing date—you’ll get a flat-rate 1.5% discount on every dollar of the amount you pay off early. Not to mention, unlike many business credit cards, the Plum won’t limit the returns you can get when you pay your bill early.
With the Plum charge card, you’ll be able to choose from month to month which perk you’ll choose to take advantage of—the ultimate flexibility of the 60-day grace period, or the unlimited 1.5% rewards that come with an early payment.
With all that said, the Plum charge card does come with one notable downside—you’ll have to pay an annual fee of $250 to be a Plum cardholder. However, American Express will waive the annual fee for your first year with the card, so that will be the perfect trial run to see if the advantages of spending with the Plum card outweigh its hefty annual fee.
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Next up on our list of the top three charge cards out there is the AMEX Business Gold Card.
This business charge card offers stellar rewards rates for every dollar you spend on your business. If you choose to do your business spending on the Amex Gold charge card, then you’ll gain access to the following flexible yet high-earning rewards rates:
However, again, be sure to note that this charge card’s perks will come at a price—$295 a year, to be precise. That said, with the Business Gold’s stellar and easily-optimized rewards program, that yearly lump sum will be simple to recoup in points value.
Last but certainly not least, the final charge card for you to consider is the AMEX Platinum card.
This business charge card is a top-of-the-line luxury travel rewards card for the business owner who’s always up in the air. When you become an Amex Platinum cardholder, you’ll be able to access luxury travel perks to the tune of universal airport lounge access, a TSA PreCheck credit, and an incidentals credit to your airline of choice, among many others. Not to mention, you’ll be able to access rewards returns from the business spending that you put on your Amex Platinum. Here are the rates that the Platinum comes with:
However, these sustained rewards and perks aren’t all that the Platinum has to offer—it will also welcome you warmly with a generous signing bonus. Once you spend $10,000 on your Platinum, you’ll earn 50,000 bonus rewards points. Plus, if you spend an additional $15,000 on your card quickly—within the first three months, to be exact—you’ll earn 50,000 more bonus rewards points. That’s a potential to earn a total of 100,000 rewards points, just for investing in your business.
All the Platinum’s perks aside, you do need to take into account that its annual fee, at $450, is one of the highest out there. Plus, Amex won’t waive your first annual fee with the Platinum, so you’ll have to pay to access this card’s perks from the get-go. That said, if you’re already planning on investing in the perks that the Platinum offers, regardless of whether you decide to get the card or not, then these perks that come with the card will more than pay for its $450 annual fee.
Understanding the difference between a charge card vs. a credit card could help you make better financing choices when it comes to borrowing those short-term funds you need for growth. Let’s summarize:
If you decide to spend with one of the three best charge cards on the market, remember to plan your charge card spending and carefully monitor your cash flow so you can pay off the balance in full—every time.
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