Charge Card vs Credit Card: Understanding the Difference

Posted on June 12, 2019

There are over 74 million MasterCard and Visa credit cards in circulation in Canada today.

While approximately 58% of Canadians pay off their credit card balance every month, not all of us are so good at managing our balance. For those people, a charge card might be a good alternative.

But what's the difference between a charge card vs credit card?

Both charge cards and credit cards allow you to make purchases without having the money up front. Depending on your spending habits and ability to pay back your balance, there's one that's right for you.

Keep reading to learn about the difference between charge vs credit cards and how to choose the best option for you.

What are Credit Cards and Charge Cards?

Credit cards and charge cards can both be considered a type of small loan. They "loan" you the money to make everyday purchases.

With a credit card, your purchase goes on credit. Credit is money borrowed from a credit grantor, like your credit card company. You use it to make purchases and agree to pay back what you spend, with applicable interest and other charges, within a certain time frame.

In this arrangement, you won't see the charge for your purchases until your credit card bill is due. You can carry that purchase on your balance or you can pay for it with your monthly payment.

A charge card looks like a credit card and is also used to make everyday purchases. They also have rewards, travel bonuses, and signup incentives in common. But while a credit card allows you to carry a balance, a charge card is meant to be paid off every month.

In that way, a charge card is not a form of credit. At the end of each month, you must pay the balance off in full or face penalties.

Differences Between Charge Card and Credit Card

There are some important differences between charge cards and credit cards. These differences involve payment terms, spending limits, annual fees, impact to your credit, costs, and selection. Keep reading to learn more about each in detail.

Payment Terms

Credit cards provide the user with flexibility in their payments. Specifically, they're not required to pay back their balance in full every month. They can opt to pay anything between their minimum balance and the full balance.

The minimum payment is a small percentage of the total balance on the credit card. What isn't paid down is revolved to the next month. In most cases, there's interest applied to the revolving balance.

On the other hand, charge cards require you to pay the balance off every month. Anything you borrow throughout the month must be paid back when your charge card bill comes due. Not paying off your monthly balance results in heavy fees and you even risk losing your card.

Spending Limits

When you get a credit card, you're given a credit limit. That limit restricts the amount of money that you can spend. It's based on your income, debts, credit, and payment history.

Generally speaking, you can't spend any more than limit you've been assigned. Some credit cards will allow you to go over the limit, but you'll be charged a fee if you opt to do so.

Charge cards don't have any preset spending limit. Unlike your credit card, your charge card places no limit on how much you can borrow in a month.

But because you have to pay back your balance at the end of each month, your spending isn't exactly unlimited. How much you spend is limited by what you're able to afford.

Utilization and Credit Impact

To calculate a credit score, creditors use the following information:

  • how many accounts you have
  • the length of credit history
  • payment history
  • how much credit you have available versus how much you're using

That last point is known as utilization, and it has a big impact on your credit rating. While credit cards impact your utilization, charge cards don't.

The newest credit score models don't use charge card balanced in their calculations. Without a spending limit, they can't be considered in the scoring criteria.

And that's a good thing when it comes to credit utilization. Technically, you can spend what you want without impacting your utilization. Whereas the more you carry on a revolving balance on a credit card, the more credit you're using and the worse your credit score will be.

Costs and Late Payment

When it comes to costs for a charge card vs credit card, charge cards tend to be more expensive. But the higher costs also mean you get additional benefits, such as no preset spending limit. Some of those benefits might also include rewards programs or travel bonuses.

In addition to higher upfront costs, a charge card also carries severe late payment fees. If you don't pay off your balance in full, these charges can add up quickly. And while credit cards may also give you late payment fees, there's a limit on how much they can charge the user.

Annual Fees

Not having any preset spending limit comes with a price. That's because charge card companies aren't making any money on interest payments. And this is why most charge cards come with an annual fee.

That fee can start at less than $100 but some charge cards can costs upwards of $400 per years. As an incentive to sign up, that fee is usually waived for the first year.

Credit cards may also have annual fees, albeit, they're usually much lower. In addition, annual fees are usually associated with credit cards that come with additions benefits, such as rewards, cash back programs, travel benefits, and other goods. But there are many credit cards without an annual fee to choose from as well.


You can get a credit card from most big financial institutions. There are also many credit card companies to choose from, including Visa, MasterCard, and American Express.

There are far less choices when it comes to charge cards. Less and less financial institutions offer this alternative to credit cards. Meaning that it's far easier to find and apply for a credit card than a charge card.

Charge Card Vs Credit Card: Which One Is Better?

When deciding between a charge card vs credit card, one isn't better than the other. The decision has to be made based on your own personal habits and preferences. You need to strongly consider your ability to pay your balance back each month and whether you have the discipline to properly manage your finances.

If you're considering a charge card, think about whether you have the means to pay off your balance every month. This might be a good option if you need some external pressure to help you manage your finances. Because you have to pay back the balance otherwise you face hefty fees, some people find this is a good way to teach themselves financial management.

Credit cards don't carry those same lessons because payment is flexible. Meaning that it's a lot easier to get yourself into financial trouble when you start accumulating debt and interest charges without paying a significant portion of your balance. This can affect your credit utilization and negatively impact your credit score.

But credit cards have their benefits as well, especially if you're good at managing your finances. If you can manage your balance, credit cards offer payment flexibility. This flexibility in paying off your balance allows you to work within your own budget and schedule.

Credit cards also provide more clarity on spending limits. Your credit card agreement places a hard limit on how much you can spend, and there's very little flexibility on that if any. So you know exactly how much you can spend, have to pay back, and what that amount looks like with the interest applied.

If you opt for a credit card, you also have a lot more options. You can choose from any number of financial institutions and credit card issuers. But you also have options in terms of various rewards programs, membership benefits, and terms.

Find a Card That's Right For You

Comparing a charge card vs credit card involves looking at the differences in payment terms, spending limits, and fees. But they also have significant differences in selection, costs, and impacts on your credit score. Deciding between one or the other means considering your spending habits and degree of financial responsibility.

When you're ready for a new credit card, make sure you find the one that's right for you. Check out our Credit Card Finder to get started.

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