Charge Card vs. Credit Card: 5 Distinguishing Features You Need to Know

business charge cards

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.

First, What Is a Charge Card?

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.

Charge Card vs. Credit Card, Broken Down Into 5 Points

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.

1. Unlike Credit Cards, Charge Cards Require You to Pay Your Monthly Balance in Full

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.

2. Charge Cards Carry Heavier Late Payment Fees Than Credit Cards

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.

3. Charge Cards Don’t Carry APRs Like Credit Cards Do

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.

4. While Credit Cards Have Credit Limits, Charge Cards Don’t

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.

5. Charge Cards Are Accessible to the Most Creditworthy Applicants

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.

Do Charge Cards Win Out Over Credit Cards for You? Here Are Your Best Options

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 two of the very best charge cards available to business owners:

The AMEX Plum Charge Card

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.


Charge Cards vs. Credit Cards: Final Thoughts

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:

  • A credit card is a more flexible option if you want the option to make just a minimum monthly payment and carry a balance without late payment fees.
  • A charge card can be a good tool for a small business owner who can pay off their card balances within a short time frame.

If you decide to spend with one of the 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.

Maddie Shepherd

Maddie Shepherd is a former Fundera senior staff writer and current contributing writer for Fundera. 

Maddie has an extensive knowledge of business credit cards, accounting tools, and merchant services, but specializes in small business financing advice. She has reviewed and analyzed dozens of financial tools and providers, helping business owners make better financial decisions. 

Read Full Author Bio