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What is a charge card, and is it different from a credit card?

Vidhu Bajaj avatar
Vidhu Bajaj
- 5 min read
What is a charge card, and is it different from a credit card?

Charge cards and credit cards may look similar, but they work differently. Credit cards let you pay for your purchases over time. However, charge cards require you to pay the balance in full each month. Put simply, you can’t carry a balance on a charge card from one month to the next, and, as a result, you're not charged any interest on outstanding balances.

What is a charge card?

A charge card is a type of card that can be used as a payment method to make purchases without paying for them immediately. Charge cards are similar to credit cards, and sometimes the terms are used interchangeably. However, it's important to understand that there are significant differences between them.

Charge cards don't have predefined credit limits 

Unlike credit cards, charge cards don't have predefined credit limits. As a result, you may benefit from a higher purchasing power when you sign up for a charge card. However, no credit limit doesn't mean you can spend unlimited money on a charge card. There will still be limits on how much money you can spend using a charge card. With a charge card, this limit isn’t predefined but can change based on your card usage, payment record, credit history and general financial situation. 

Charge cards won’t allow you to accumulate debt 

When you use a charge card, you must pay off the statement balance in full by the due date. While this may seem inconvenient, having to pay off your debt in full could be a better financial option for many. It can make you more careful and consider any purchase you make using your charge card more than you may do with  a credit card which you can pay off over a longer time.

Charge cards could be useful to pay for something when you don’t have the cash in your account but will on payday or in the future. Or, if you get rewards from the card, you may choose to use it for purchases for the rewards and then repay it each payday. On the other hand, credit cards offer the option to make minimum payments on your statement balance. While this may help you manage your expenses in the short term, it could lead to debt if you're not careful. 

Charge cards don’t charge interest but do come with costs 

With a charge card, you can't possibly accumulate debt, as you must pay off your balance in full each month, and you’ll not be charged interest. But that doesn't mean charge cards are free of cost. 

Charge cards can come with higher annual fees than credit cards. The late payment fees can be significant if you can’t pay off your balance at the end of the statement period. Additionally, you may be blocked from making any new purchases on the card until the outstanding balance is cleared.

Charge cards vs credit cards: how do they differ?

Charge cards

Credit cards

No pre-set credit limit, but transactions must be approved by the card issuer to avoid unlimited spending.

Credit cards come with predefined credit limits signifying the maximum amount of money you could spend on a particular card. 

You’ll typically need to pay off your card balance in full each month.

Option to pay a small amount of the outstanding balance each month.

No interest is charged, as outstanding debt is not allowed.

The balance on your card will accrue interest at a pre-specified interest rate if it remains unpaid after the statement date.

Usually associated with premium rewards programs and benefits. However, you’ll likely pay high annual fees to access a charge card and unlock its privileges. 

There are various credit cards available to suit different budgets and spending patterns. Premium cards with lucrative rewards programs usually charge higher annual fees and interest. But you can also find credit cards with low or no annual fees.

Who offers charge cards in Australia?

Charge cards are less popular in Australia than in some other countries. Only one personal use charge card is available in the Australian market at the time of writing. 

If you wish to apply for a charge card for personal use, Amex offers a platinum card with no pre-set spending limit. However, remember that the annual fee for a charge card is often higher than a credit card’s, so check all the fees and charges before deciding. 

If you’re interested in getting a charge card but are unable to do so, a credit card with a high credit limit and premium rewards program might be worth exploring. You can avoid debt and interest payments, even while using a credit card, by paying off your balance in full each month.

Choosing between a charge card and a credit card will depend on your spending habits and financial goals. A charge card may be suitable for someone who prioritises responsible spending and can pay off their balance in full each month. On the other hand, a credit card may offer more flexibility, but you’ll need to budget carefully to avoid accumulating debt.

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Product database updated 23 Jul, 2024

This article was reviewed by Personal Finance Editor Peter Terlato before it was published as part of RateCity's Fact Check process.