Key takeaways
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Charge cards require payment in full every month and have no preset spending limit.
- They do not impact your credit utilization because of the lack of a preset limit.
- They can still impact your credit score through your payment history and responsible use.
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. They also come with no preset spending limit, which could be appealing if you want to avoid going into debt but want strong purchasing power.
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, not impacting your credit utilization.
How do charge cards affect your credit score?
When used properly, charge cards can help build credit in much the same way that credit cards can. Let’s break it down by each credit score factor.
How charge cards differ from credit cards
Charge cards and credit cards work similarly, though there are a few key differences between them:
| 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 | 20.09 percent, 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 | Often yes, and they can be substantial | 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® Credit Card, and some gas cards, like the BP Business Solutions Mastercard* and Shell Fleet Plus® Card*.
American Express no longer uses the term “charge card” for many of its rewards cards, but it still offers 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® Gold Card — come with high annual fees, but many credit cards with set limits also charge annual fees.
Charge cards won’t affect your credit utilization
The elephant in the room when using a charge card for building credit is 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. Making a large purchase on your credit card could put you close to your credit limit and negatively affect your credit utilization ratio, which 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.
Keep in mind
Even though your utilization isn’t affected, whether you pay off your card in a responsible manner influences 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?
Payment history is the most important factor in both your FICO credit score and 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 — which means 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.
However, a charge card’s inability to affect your credit utilization ratio means that it is ultimately less effective than a traditional credit card at helping you build credit. If your primary focus is on building credit, consider a credit card first and foremost.
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 primarily need a card to build your credit rather than for other financial functions.
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.
*The information about the BP Business Solutions Mastercard and Shell Fleet Plus® Card has been collected independently by Bankrate.com. The card details have not been reviewed or approved by the issuer.
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