Sunday Reader Question: Difference between Charge Card and Credit Card?

American Express is the only creditor in Canada that offers charge cards, which are slightly different than credit cards. Examples of these charge cards are the AMEX Gold (this is a referral) and the AMEX Platinum card (this is a referral). A reader asks: “What’s the difference between a Charge Card and a Credit Card?”

The main difference between a charge card and a credit card is that a charge card does not have an established credit limit, whereas a credit card does. To decide whether or not a charge on the charge card will be approved, AMEX will automatically consider a number of factors for every charge, and make a decision on whether or not to approve it each time. In contrast, a credit card has an established limit, and once you exceed that limit, the creditor will decline the transaction (although creditors do sometimes allow you to exceed your credit limit, with a fine for going above your limit).

A charge card will typically have a very high interest charge on balances. For example, the APR on the AMEX Gold is 30%, whereas a typical credit card will have an interest rate of between 0-20%. On a charge card, you’re expected to pay off the entire balance each month, whereas on a credit card you’re allowed to carry a balance, so long as you make your minimum payment.

On your credit report, a credit card will show your total available credit as your credit limit. In contrast, a charge card will reflect the total available credit as the highest balance ever held on your charge card. For example, if in December I spent $10,589, the highest ever spent in a month on that card, the charge card will reflect on my credit bureau as having a credit limit of $10,589.

Practically, there really isn’t a difference between a charge card and a credit card in terms of end use. My advice is to not worry whether something is a charge card or a credit card – it won’t affect your life in any way.