Charge Cards vs. Credit Cards: How Can They Damage Your Credit?

While charge cards and credit cards sound identical, how they impact your credit can be different. Not understanding these small but crucial differences could result in your credit score dropping. To ensure you maintain good standing with your credit accounts, here are ways to distinguish charge cards and credit cards:

What Makes a Charge Card Different from a Credit Card
There are plenty of similarities between credit cards and charge cards, including having the same kinds of rewards and fees, according to U.S. News & World Report. Although a credit card provides you with a credit limit and the option to make purchases to pay off later, a charge card is different in how you repay charges.

With a credit card, you have a predetermined limit and are allowed to keep a balance, but this isn't the case with charge cards. Many charge card issuers do not set a spending limit for you upon approval. Later on the card provider may establish a limit, but some do not.

Another key difference is that balances on a charge card do not roll over. When you receive your statement, you must pay the total balance rather than being able to pay the minimum each month with a credit card, according to FICO.

A charge card allows you to spend without a predetermined credit limit, but keep an eye on your debt levels. A charge card allows you to spend without a predetermined credit limit, but keep an eye on your debt levels.

Which Card Can Do the Most Damage to Your Score?
In addition to grasping the intricacies of charge cards vs. credit cards, it's also important to know which one can affect your credit the most.

Here are the pros and cons of a charge card vs. a credit card:

Credit Card

  • Pro: More flexibility to choose how to spend your money. One benefit of a credit card is you don't have to pay the full balance of your statement, which allows you to allocate some funds toward other credit obligations, like a mortgage or car loan.
  • Con: Interest will accumulate on unpaid balances. Although you're able to carry a balance, you will have to pay interest on the remaining amount owed, which could put you further into debt.

Charge Card

  • Pro: You can typically charge as much as you want. With a charge card, there is no set limit, so you could make big purchases without worrying about going over your limit.
  • Con: There is the risk of overspending and getting into debt. Although you have the choice to charge a large amount each month, you could spend too much and not be able to pay back the full balance.

With these risks, either one could damage your credit, but by using your card responsibility, by paying balances on time, you could lower the chance a credit card or charge could could lower your score.