What is a charge card?

At a glance, charge cards and credit cards can seem very similar. After all, they both give cardholders the flexibility to borrow money for purchases now and make payments later. But there are some important differences.

In general, charge cards require cardholders to pay their balances in full each billing cycle. And unlike a traditional credit card, charge cards typically don’t have a preset spending limit. Keep reading to learn more about charge cards.

What you’ll learn:

• A charge card offers the ability to make purchases and typically has to be paid off in full each month.

• Most charge cards have no preset spending limit. 

• Interest charges typically aren’t associated with charge cards, but they may have high annual fees and late payment fees.

• Since most charge cards require the balance to be paid in full each month, having a charge card doesn’t typically affect credit utilization—an important credit-scoring factor.

A charge card is a method of payment that typically has no preset spending limit. Cardholders often have to pay off the charge card in full at the end of each billing cycle. There typically aren’t interest rates or minimum payments tied to the card, but late fees can be charged for late payments in addition to an annual fee.

The major differences between charge cards and credit cards are that charge cards: 

• Generally don’t have a preset spending limit 

• Typically don’t charge interest 

• Typically must be paid in full each month

With that being said, some charge cards may allow you to carry a portion of your balance over time and pay it back with interest.

Applying for a charge card is a process much like applying for a credit card. Factors like income and credit scores will generally play a key role in determining whether an applicant is approved. 

While many card issuers have stopped offering charge cards, some issuers still do—for example, Capital One offers business charge cards.

Credit score requirements usually vary by issuer and aren’t the only factor in approval.

Before deciding if a charge card is right for you, consider the possible advantages and disadvantages first, including the following:

Charge cards can offer several benefits, including:

• No preset spending limit: Because a charge card doesn’t have a preset spending limit, it may be able to be used for large purchases.

• No interest charges: A charge card typically must be paid off in full at the end of each billing cycle, so the card may not have an interest rate. But late payment fees may be charged if the balance isn’t paid off on time.

• Elevated rewards benefits: Some charge cards, like the ones offered by Capital One, allow cardholders to earn elevated rewards, such as miles or cash back, on spending categories such as travel.

Charge cards may not be right for everyone. Here are some potential drawbacks:

• Fees: Charge cards can feature high annual fees and steep late payment fees for missing or late payments.

• Strict repayment terms: In most cases, charge cards don’t allow cardholders to carry a balance from month to month. Instead, cardholders may be required to pay off their balance in full each month.

• Credit score requirements: Requirements may vary, depending on the issuer, but charge cards are often geared toward those with excellent credit scores.

Charge cards can be a useful tool, thanks to their flexible spending terms and no interest charges. But it’s worth considering whether a charge card is the best fit for you and your financial plans.

If you’re searching for a credit card, you could compare Capital One cards to see which option might be right for you.