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The main difference between a charge card and a credit card is how you repay what you spend.
A traditional charge card requires you to pay your balance in full each month, while a credit card lets you carry a balance as long as you make the required minimum payment.
Charge cards also typically have no preset spending limit, whereas credit cards have a defined credit limit.
KOHO Prepaid Mastercard
KOHO Prepaid Mastercard is an alternative for Canadians who want to make card purchases without borrowing money.
With KOHO Prepaid Mastercard, you can:
Get instant approval with no credit check
Spend only the money you load onto your account
Pay no interest on your purchases
Earn up to 2% cash back
Use your card for in-store purchases, online shopping and recurring payments
What Is a Charge Card?
A charge card allows you to make purchases and receive a statement at the end of your billing cycle.
Traditionally, you must pay the entire statement balance by its due date rather than carrying the balance into the following month.
Charge cards typically have no preset spending limit. However, that doesn't mean you have unlimited purchasing power. The issuer determines whether to approve transactions based on factors such as your credit history, payment behaviour and financial resources.
Some modern charge cards also offer flexible payment features that let eligible balances be repaid over time with interest. You should check the specific card's agreement rather than assume every purchase must be paid in full.
What Is a Credit Card?
A credit card provides access to a revolving line of credit with a specified limit.
For example, if you have a $5,000 credit limit and spend $1,000, you generally have $4,000 in available credit remaining.
When your statement arrives, you can pay the full balance or make at least the minimum required payment.
Paying your statement balance in full by the due date generally allows you to avoid interest on purchases, provided you qualify for the card's interest-free grace period.
If you carry a balance, interest charges can increase the cost of your purchases.
Charge Card vs. Credit Card: Key Differences
1. Payment requirements
A traditional charge card requires full repayment every month. This makes it better suited to purchases you can already afford to pay off.
A credit card offers more repayment flexibility because you can carry a balance.
However, paying only the minimum on a credit card can result in significant interest charges and take much longer to eliminate your debt.
2. Spending limits
Credit cards have a defined credit limit that restricts how much you can borrow.
Charge cards often have no preset spending limit. Your purchasing power may change based on the issuer's assessment of your account.
A large transaction can still be declined, even if your charge card doesn't display a fixed limit.
3. Interest and fees
Traditional charge cards generally don't charge purchase interest when you're required to pay the full balance on time. However, late payments can trigger substantial charges.
Charge cards with flexible payment features may charge interest on eligible balances carried forward.
Credit cards typically charge interest when you carry a purchase balance beyond the applicable grace period.
Both types of cards may have annual fees, foreign transaction fees and other charges. Compare the actual card agreements before applying.
4. Rewards and benefits
Both charge cards and credit cards can offer rewards such as cash back, travel points, insurance and purchase protection.
Premium cards may also include airport lounge access or other travel benefits.
These features aren't exclusive to either card type. Compare the rewards you expect to use against the annual fee and other costs.
Do Charge Cards Build Credit?
Yes, charge cards can help you build credit if the issuer reports your account activity to Equifax or TransUnion.
Making payments on time can contribute to a positive payment history, while missed payments can damage your credit.
However, charge cards without a preset spending limit may be treated differently from traditional credit cards when credit scoring models calculate credit utilization.
The exact impact depends on how the issuer reports the account and which scoring model is used.
Which Is Better: A Charge Card or Credit Card?
A charge card may suit you if you consistently pay your balance in full, want flexible purchasing capacity and can justify any annual fee through the benefits you receive.
A credit card may be more appropriate if you want a defined spending limit or the option to spread payments across multiple months.
If you expect to carry a balance, compare interest rates carefully. The ability to make minimum payments can be useful, but it can also make borrowing considerably more expensive.