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.

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 don’t have a preset spending limit or interest charges and the cardholder is obliged to pay the full balance each month. That being said, some charge cards allow you to carry a portion of your balance or certain purchases over time and pay back with interest.

While charge cards are less common than credit cards, several issuers still offer them. 

The Capital One Spark 2% Cash Plus card is a charge card for businesses. It offers rewards like unlimited 2% cash back on every purchase. Cardholders agree to pay off their balance in full every month.

Credit score requirements vary by issuer and aren’t the only factor in approval. However, certain cards may be geared toward applicants with high credit scores.

Here are a few advantages and disadvantages of using a charge card:

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.

• Rewards benefits: Many charge cards allow cardholders to earn 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.