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Originating in the United States in the 1950s, charge cards were historically the first iteration of a card-based payment method that eventually evolved into the first modern credit cards.
Frank McNamara and Ralph Schneider are credited as being the originators of charge cards, after they created the Diners Club card.
What’s the difference between a charge card and a credit card, though? We explain below.
A charge card is a bank card that allows you to pay for goods and services on credit. Charge cards work similarly to credit cards in the way you can use them to pay for things using credit in the moment and pay back the financial institution that issued the card later on.
However, unlike credit cards, which allow you to carry a balance month over month, charge cards require you to pay your balance in full before the start of your next billing cycle. Otherwise, you face late fees and other penalties.
A charge card is a bank card that allows you to pay for goods and services on credit. Charge cards work similarly to credit cards in the way you can use them to pay for things using credit in the moment and pay back the financial institution that issued the card later on.
However, unlike credit cards, which allow you to carry a balance month over month, charge cards require you to pay your balance in full before the start of your next billing cycle. Otherwise, you face late fees and other penalties.
The main difference between credit cards and charge cards has to do with repayment obligations.
With a charge card, you must pay off your full balance by the end of that billing cycle. A typical credit card, on the other hand, allows you to pay only a portion of your balance, known as the minimum payment. Charge cards don’t charge interest or require minimum payments.
Another difference is that charge cards have no preset spending limit, which can be helpful for those looking to make large purchases. They are also known to require a high credit score for approval.
Because charge cards have to be paid off in full each billing cycle, they don’t incur interest.
There are, however, expensive late fees you can incur if you don’t pay off the balance, so it’s important to make sure you pay your card off on time to avoid these.
Your credit utilization ratio is one factor that makes up your credit score. It is essentially calculated by dividing your used credit by your available credit. It’s recommended to keep your utilization rate to less than 35% (the sweet spot is usually 30%).
A low credit utilization ratio is a good indicator for banks and potential lenders, since it shows them that you’re not getting close to your credit ceiling each month. Since charge cards have no credit limits, using them shouldn’t have any impact on your utilization rate. They can, however, affect your credit score if your late payment is reported to a credit bureau.
Unlike credit cards, charge cards don’t have a predetermined spending limit. Of course, this does’t mean that you can spend an unlimited amount of money. Your card issuer will approve your purchases based on several different factors, such as your payment history, credit record, spending patterns, and income.
If you find spending limits frustrating when using a traditional credit card, a charge card might be something to consider.
Charge cards are known for having several rewards and perks, which work similarly to the way rewards for credit cards work. Some of these rewards typically include travel points with various airlines and hotels.
Since charge cards require you to pay off all your used credit at the end of the 30-day period you made the transactions in, they can inadvertently get you into a good debt repayment habit. This can make it harder to rack up debt the way it’s easy to with a credit card, which only requires a minimum payment each month.
Charge cards come with steep late fees, which usually equal about 3% of the total balance. For example, if you spent $3,000 on your charge card and didn’t pay this amount back in time, the late fee would be $90. The total amount you would be expected to pay to avoid further late payment fees would be the late fee payment plus the money spent on the charge card. In this case, that would be $3,090.
Annual fees for charge cards in Canada can be as high as $500. For some people, the rewards associated with them are worth paying these fees but that depends on your budget and spending patterns.
Charge cards aren’t as plentiful in Canada as credit cards are. At the time of this writing, the only credit card issuer that offers charge cards is American Express.
Applying for a charge card will show up as a hard inquiry on your credit report, similar to the way a credit card application would. This can result in a temporary hit to your credit score.
Since charge cards require you to pay off your balance in full at the end of each month, as long as you abide by this rule, you should see a positive impact on your credit score.
If you fail to pay off your card, you’ll face a late payment fee, which could negatively impact your score. Similar to overdue payments with credit cards, late or missed payments on charge cards can hurt your credit score if they’re reported to a credit bureau.
At the moment, American Express is the only bank in Canada that offers charge cards. These include:
You can apply for a charge card in person at a bank branch or online. A credit check is typically required before you’re approved for a charge card. This could impact how long it takes to get the card, and it could also lower your credit score by a few points temporarily, since it’s considered a hard check.
Charge cards typically require you to have a high credit score to be approved for them, so they are generally harder to get than some credit cards. Plus, there are fewer charge cards available in Canada than credit cards, so from that perspective, it can also be harder to get one.
The major difference between a charge card and a credit card is that a charge card must be paid in full at the end of each billing cycle, whereas a credit card requires only the minimum payment (though you will incur interest on any unpaid balance).
Charge cards are neither good nor bad. Whether they’re right for you depends on your individual circumstances and credit needs — and most importantly, your ability to pay off your balance consistently each billing cycle.
