Have you ever wondered what the difference was between charge cards and credit cards? Many people use these terms interchangeably, but there actually is a difference. And while business charge cards aren’t as popular as they once were, they’re still being offered and it’s important to know how they are like business credit cards, and how they are different.
How a charge card works
A charge card is a method of payment that allows customers to make multiple purchases, while making a single monthly payment for all of their charges. For over 100 years, individual merchants offered some customers charge accounts, similar to a proverbial (or actual) “bar tab.” In 1950, Diner’s Club was the first to offer a charge account that could be used at multiple merchants. American Express began issuing charge accounts in 1957 that were associated with a plastic card that’s similar to what we see today.
Five differences between a charge card and a credit card
1. You must pay your card in full each month.
The key characteristic of a charge card is that cardholders are expected to pay each month’s statement balance in full. Therefore, you won’t see any standard interest rate associated with these cards, although there are penalties for failing to pay your balance in full. For those who always avoid interest by paying their credit card’s monthly statement balance in full anyways, this isn’t a concern. Yet for those who rely on their credit card to finance purchases and plan to carry a balance, a charge card will not meet their needs.
2. Some charge cards can act like credit cards.
American Express sometimes offers its cardmembers an option called “pay over time” that allows it’s to be used as a revolving charge account. When this option is selected, there’s very little functional difference between a charge account and a credit card account.
3. Charge cards tend to be high end reward cards.
American Express is the last major charge card issuer in the United States, and all of its charge cards offer significant rewards and benefits. For example, it offers three business charge cards including the Business Gold Rewards Card, The Plum Card, and the Business Platinum Card. It also offers four charges cards for consumers.
4. There is a much greater selection of credit cards than charge cards.
With only one remaining charge card issuer, there is a very limited selection available. All of these charge cards have an annual fee of at least $95 and they are all part of the American Express payment network. In contrast, there are business and personal credit cards available from dozens of card issuers with annual fees ranging from zero to several hundred dollars.
5. Charge cards have no preset spending limit.
One of the few inherent benefits of a charge card over a credit card is a lack of a predefined line of credit. There are limits on your account base on your payment history, credit history, and other factors, so you cannot make unlimited charges. In contrast, most credit cards come with a preset spending limit that you can’t exceed.
This article was originally written on May 29, 2017 and updated on July 16, 2020.