The terms “charge card” and “credit card” seem to be interchangeable. After all, you can pull either out of your wallet and plunk it down to purchase just about anything you want, and both can impact your credit score. But charge cards are different from credit cards in that they don’t allow you to carry a balance — they require payment in full every month. And there’s no preset spending limit, which could appeal to consumers wanting to avoid going into debt, but who also want strong purchasing power. In fact, these charge card characteristics are among the reasons the charge card market globally is expected to grow to $2.15 billion by 2027, up from $1.99 billion in 2023.
But does a charge card affect your credit score the same way a credit card does? In most cases, yes. The biggest difference comes down to charge cards not having a preset spending limit and, therefore, having no impact on your credit utilization.
How charge cards differ from credit cards
A charge card and credit card work the same when it comes to making purchases, though with key differences to keep in mind when weighing the two options.
| Charge cards | Credit cards | |
|---|---|---|
| Balance due | Full payment is due every month | Minimum payment due every month — you can carry a balance, which incurs interest rate charges |
| Interest charged | None | 20.72% on average |
| Preset spending limit | None | Issuers determine credit limits based on creditworthiness and other factors, while secured card limits are usually equal to the security deposit. |
| Annual fee | Yes, and they can be substantial — even into the thousands of dollars | Sometimes |
| Minimum credit score | Often 670 or higher | You can find credit cards for all levels of credit |
Charge card examples
The most common charge cards nowadays are business cards like the Capital One Spark Cash Plus, Ink Business Premier Card℠, BILL Divvy Corporate Card and Brex 30 Card. Some gas cards, like the Sunoco Gas Card and Conoco Fleet Card, also qualify as charge cards.
American Express no longer uses the term “charge card” for many of its rewards cards, but it does still offer cards with no preset limit. You can choose to pay your bill in full each month or take advantage of options for payment over a longer period with interest. Several of these American Express cards — like The Platinum Card® from American Express or the American Express® Business Gold Card — do come with high annual fees, but many credit cards with set limits also charge annual fees.
Ways charge cards affect your credit score
When used properly, charge cards can help build credit in much the same way that credit cards can.
When you use your charge card, your payment history is reported to the three major credit bureaus — Equifax, Experian and TransUnion. Responsible use can enhance your credit score, although its influence differs from that of a typical credit card. If you use the card as intended, paying off the full balance monthly, charge cards can help establish evidence of positive habits that can improve your credit score.
As your credit history ages, it generally has a more positive effect on your credit score. Your length of credit history contributes 15 percent to your FICO score and approximately 20 percent to your VantageScore credit score when considered in conjunction with your credit mix of revolving and non-revolving accounts.
When you carry and use your charge card over time, your credit history builds.
Credit mix refers to the different kinds of credit accounts in your possession, including charge accounts like a charge card. The significance of credit mix lies in the observation by FICO and VantageScore scoring systems that adhering to a consistent monthly payment is more demanding than having the flexibility to adjust the payment based on your current financial situation. Demonstrating the ability to meet a fixed financial commitment suggests that you are a less risky borrower, earning you additional points in the credit scoring process.
New credit means credit lines, loans or charge accounts (like a charge card) that you applied for that you did not have before. Getting new credit can temporarily drop your credit score but improve it, too, if the new account is for a credit category you didn’t previously have. New credit accounts for 10 percent of your credit score.
Charge cards won’t affect your credit utilization
Because charge cards don’t have a preset limit, they don’t impact your credit utilization ratio — or how much of your credit limit you use.
This can be good news if you use a charge card for a large purchase. If you make a large purchase on a credit card, that could put you close to your credit limit and negatively affect your credit utilization ratio. That, in turn, risks dinging your credit until the account is paid down. But putting the same amount on a charge card wouldn’t affect your credit use and, therefore, won’t impact that portion of what makes up your credit score..
A word of caution, here: Even though your utilization isn’t affected, whether you pay off your card in a responsible manner does influence your credit score. Make on-time payments and keep balances within range of what you can pay off in full each billing cycle.
Is a charge card better for your credit?
Charge cards don’t have as much impact on your credit as credit cards because they don’t impact your credit utilization. Therefore, a charge card can be better for your credit as long as you otherwise handle the card responsibly with on-time payments.
Payment history is the most important factor in your FICO credit score and is moderately influential to your VantageScore. Paying your bill on time, every time, will help your score, whether you’re paying a charge or credit card. And unlike most rent payments, utility, cable and cellphone bills — all of which must be paid in full like an installment loan — charge cards are regularly reported to the credit bureaus, and your good payment history will show up. So, paying your bill on time will help your score whether you use a charge card or a credit card.
But keep in mind that having no credit limit — a generous perk provided by a charge card — can be risky, especially if you have a penchant for impulse spending or overcharging beyond your means to repay. That’s why it’s crucial to know your affordability limits and to spend within your means.
The bottom line
Figuring out what kind of card you need is a personal choice. There are excellent credit cards and charge cards out there to meet a variety of rewards, budget and lifestyle needs. Deciding between a charge card and a credit card involves determining whether the more restrictive payment requirements for a charge card will fit into your budget, and if you can handle the freedom of no preset spending limit.
On the other hand, credit cards have a limit to help keep your spending in check, but if you make a large purchase on a credit card that puts you close to that limit, your credit score could take a hit.
Both types of cards can help your credit, so consider all that a particular card has to offer when comparing your choices and making a decision. If you need help narrowing down the options, take a look at Bankrate’s CardMatch tool for tailored recommendations.
