What’s the difference between a charge card and a credit card?

Many of us prefer the convenience of paying by plastic rather than cash, but whether you choose a credit card or a charge card will depend on your individual needs.

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While a credit card will be the right choice for those who don’t want to have to pay off what they owe immediately, if you always clear your balance in full each month and are looking for a card which comes with added benefits, it may worth considering a charge card.

Here, we look at the differences between charge cards and credit cards to help you decide which the best option is for you...

Charge cards versus credit cards – how they differ

Credit cards

When you use a credit card for purchases, you will only be able to spend up to a set limit. Each month you will have to make at least a minimum payment of at least 1% of the balance plus that month's interest. Interest will apply to balances not cleared in full.

Credit cards often come with lengthy introductory 0% rates on purchases or balance transfers to tempt customers.

Purchases costing between £100 up to £60,260 made with a credit card are protected under Section 75 of the Consumer Credit Act and Consumer Credit Directive, so the card issuer is jointly liable if something goes wrong. That means if the retailer goes bust, or your goods are faulty, you can claim a refund through the card provider.


Charge cards

Charge cards, however, don’t offer a credit facility. Consequently, there is no spending limit and no interest rate. You can spend as much as you want on the card but you have to pay your bill in full and on time.

If the reason why you like credit cards is because they give you the option to spread the cost of your spending a charge card definitely won’t be for you.

Charge cards also often come with an annual fee, but in return for this, you are likely to be offered a range of perks, such as a concierge service, access to airport lounges and insurances. They tend to appeal to high earners and high spenders – often there will be a minimum income requirement, so not everyone will be eligible.

Charge cards aren’t covered by Section 75 of the Consumer Credit Act. However, so as not to deter people from using these cards many providers offer protection through a scheme called charge back. American Express, Visa and MasterCard all have chargeback schemes which enable customers to claim for a refund within 120 days of discovering there’s a problem. Unlike Section 75, this is a voluntary scheme to which the bank providing your charge card can sign up to. It is therefore not quite as robust although most major providers will adhere to it.

Credit cards vs charge cards at a glance

 Credit cards  Charge cards
 Credit facility so you can spread the cost of your spending.  No credit facility so you must pay your bill in full each month.
 Spending cap – credit limit and you won’t know what this is until after you’ve applied for a card.  No spending cap.
 Risk-based pricing – you may not get the rate of interest you applied for. It will depend on your credit history. You may also be charged different rates of interest depending on how you use the card. Eg. The rate for cash withdrawals will probably be higher than that for purchases.  No interest is charged because balances are repaid every month. You can only use a charge card for spending – balances can’t be transferred onto them because there is no credit facility.
 Large choice of products including cards that offer 0% periods on balance transfers and/or purchases and cards that give cashback or rewards.  Smaller range of products but you can get some generous rewards and benefits including concierge services and airport lounge access.
 No need to pay an annual fee (although some premium credit cards do charge a fee in exchange for a more extensive range of benefits).  Annual fee although these vary in price considerably as do the benefits you receive.
 The most competitive products, eg. longest 0% offers, are only available to those with excellent credit ratings. Some premium cards have minimum income requirements.  Charge cards tend to have minimum income requirements. You must earn at least £40,000 a year for example to qualify for the American Express Platinum.
 Section 75 of the Consumer Credit Act protects purchases between £100 and £30,000 against a retailer going bust, or goods arriving faulty or damaged. This protection was extended to purchases up to £60,260 under the 2011 Consumer Credit Directive.  Purchases aren’t protected by Section 75 of the Consumer Credit Act, but they should be covered by chargeback. This covers purchases over £10 for 120 days after a problem arising.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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