September 20, 2020

Credit card vs. charge card: What is the difference?


Credit cards and charge cards are easy to confuse with one another. When making a decision about which card is right for your business, it’s important to identify each card’s basic features. This way, when it comes time to set up your company’s finance stack, you can make an informed decision. 


So, what is the difference between a credit card vs. charge card?

What is a credit card?

Credit cards enable cardholders to make purchases by using credit issued by the credit card company (e.g. Amex or Mastercard). 


This means that instead of directly utilizing existing cash for each purchase, each charge is instead issued as a loan and noted in a monthly credit card statement. This loan amount—the credit card balance—can then be paid back in installments to the card provider over a period of time, with an additional amount of interest specified by the card provider.  


Other factors to consider when choosing a credit card include:

  • Credit limit – Credit cards have a credit limit set by the card issuer. This puts a cap on the amount of available credit each month. Your credit limit is often determined by the card issuer based on your credit score and payment  history.
  • Minimum payments – Typically, each statement will include a minimum payment due each month. The minimum payment may represent a percentage of the outstanding balance for each billing cycle.
  • Revolving balance – If you’re only able to pay the minimum, the remaining balance will be carried over to the next month. This continues until the balance is settled. The balance that’s carried over is called the revolving balance. The cardholder is then responsible for paying interest, with an interest rate known as the APR (Annual Percentage Rate) on the remaining balance.

These factors can also apply to virtual credit cards.


A virtual credit card is the same as a physical card—minus the metal and plastic. Thanks to their virtual nature, these credit cards eliminate the chance of a physical card being lost or stolen.


Not to mention, they come with some modern-day benefits:

  • Instant spending – No need to wait days or weeks on a physical card to arrive in the mail to start spending. With virtual credit cards, you can spend the moment the card is issued. 
  • Easy card creation – Corporate virtual card programs allow businesses to seamlessly spin up new cards for different departments, employees, and vendors. This allows your team to compartmentalize your expenses. 
  • Heightened security Although virtual cards for business don't completely eliminate the possibility of fraud, they mitigate the chances. For one, the cards can’t be physically stolen. In addition, spending caps and limits reduce the potential damage in case of a fraud incident.
  • Payment flexibility – In general, credit cards allow individuals or businesses to make larger purchases without needing to repay the full amount immediately. This is a boon for small businesses and startups who often don’t have a cash surplus to spend immediately, yet depend on large purchases to sustain their ope

What is a charge card?

While charge cards also represent a line of credit issued by the card provider, they operate differently than a credit card. Here’s how charge cards work:

  • No interest accrual – The balance on a charge card does not roll over each month. Because cardholders are responsible for paying their full balance at the end of each billing cycle, they don’t have to pay interest. 
  • Flexible spending limit – For companies with consistent cash flow, charge cards can be very useful because they can have more flexible spending limits. The spending limit on a charge card fluctuates based on factors determined by the card provider. These factors could include monthly spending, liquid assets, historical sales, and repayment habits.
  • Fixed monthly or annual fees – Depending on the card issuer, charge cards may often require fixed monthly or annual fees.

Charge cards are great options for small businesses that don’t need to finance themselves with credit, which tends to be extremely expensive.

What is the difference between charge cards and credit cards?

Now that we have defined each card type, here are some of the key differences between the two. 

Payment terms

  • Charge cards – Charge cards balances must be paid off in full at the end of each month. This can be a highly effective way of managing budgets for those who have greater financial predictability and will be able to shoulder the full expense each month.
  • Credit cards – Credit cards allow for partial payments of the outstanding balance each month, with the remaining unpaid balance rolling over to next month’s billing cycle. However, any unpaid balance rolled over to the next month is charged with an additional APR rate. If this cycle is perpetuated over a long period of time, a business can accrue exorbitant amounts of interest on that balance and potentially lower their credit score in the process.

Card limits

  • Credit cards – Credit cards are issued with preset credit limits. Once the cardholder has reached the limit each month, the issuer will no longer allow them to continue to accrue balance. Credit limits can be a helpful way to evaluate a monthly budget and track credit utilization, as they automatically cap spending at a fixed amount.
  • Charge cards – Charge cards have more flexible spending limits, which can be adjusted based on how the card issuing company underwrites. Some charge card issuers may allow for more flexibility with this monthly limit. This is often determined by fluctuating factors, such as quarterly sales or the account balance. 


  • Credit cards – Credit cards usually include a fixed APR for any outstanding balance carried over to the next month’s billing cycle. Paying interest charges on your credit loan can add up to a large sum over time, and can get some cardholders into trouble with credit card debt if they don’t pay their full balance. Some credit card issuers charge fixed monthly or annual fees as well.
  • Charge cards – Charge cards can also have fixed monthly or annual fees, although they do not charge interest or transaction fees. Additionally, some charge card providers may charge late fees if there’s a remaining balance at the end of the billing cycle. 


  • Credit cards – When determining how to get a business credit card, it’s important to consider that there are credit cards available for different credit scores and credit history. This makes credit cards accessible to most businesses, no matter their financial situation. It can also mean that there are a wide variety of options to choose from when selecting a credit card. Depending on the lender, business credit card requirements vary.
  • Charge cards – Charge cards are typically issued to a more selective group than credit cards. Because charge cards require the full payment each month, issuers want to be certain that cardholders will be able to consistently follow through with their payments.

Similarities between credit cards and charge cards

Just as it’s necessary to outline the differences between the two card types, it’s also important to note their similarities. Both card types require promptly managing monthly bills and maintaining awareness of spending habits, among a few other key similarities:

  • Credit score influence
  • Late payment fees
  • Benefits

Credit score influence

Both credit and charge cards can positively or negatively impact your credit score. If you are in good standing with your bank or financial institution and make regular payments on either type of card, this will help you attain a good credit score over time.


Late payments, however, will lead to a bad credit score, regardless of which card you choose. Financial responsibility and timely payments are key. Make sure you keep track of your monthly budget to limit overspending with your card. 

Late payment fees

Both credit and charge cards will often enforce late fees if payments are not timely. Though the type of late fee varies, it’s important to pay your entire balance on time. Credit cards will charge APR on outstanding balance, and charge cards may enforce a late fee for any tardy payments. 


Both types of cards offer varying benefits to cardholders. These can include:

  • Rewards points 
  • Cash back
  • Travel perks
  • Discounts with certain vendors 


When determining which card is right for you, consider how these benefits will fit your company, and which will be the most lucrative based on your spending habits.

Credit cards and charge cards: the bottom line

No matter what your vision for your business entails, it’s important to establish a stable financial base for your company. Knowing where your money is spent each month and managing payments are a few simple ways to ensure that you’re on the right track with your finances.


To do this, the first step is choosing the right card for your business. And what better way than going with a corporate card that has a built-in spend management platform?


That’s the benefit of partnering with Ramp.


Feel free to reach out to the experts at Ramp any time to better understand how your corporate card choice influences your financial goals.

The term charge card is defined in our Ramp Finance Glossary.

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