How to Choose Between a Credit Card and a Charge Card

Platinum charge cardPeople sometimes use the terms “credit card” and “charge card” interchangeably. However, they are different animals, and their differences should be clearly understood by any business owner searching for new credit.

Let’s look at some key needs/features that a small business owner might desire when seeking credit, and see whether credit cards or charge cards are best able to meet those needs. There is almost always a trade-off, so think hard about your business requirements to determine which is right for you. (Note: Because American Express is by far the main issuer of charge cards, my commentary on those cards is based mainly on their practices.)

  • Flexibility to Float Purchases — Small business owners often rely on credit cards to start a business, or to float purchases while waiting for receivables to make their (too slow) journey into the owner’s bank account. Credit cards allow you to pay as much as you want each month, or to pay very little if the funds aren’t available. Charge cards, on the other hand, force you to pay off your entire balance each month. Winner: credit cards.
  • Forced Fiscal Restraint — With credit cards’ flexibility comes the possibility of racking up debt and paying high interest charges for the privilege. If you have a strong aversion to debt and may be tempted if allowed to revolve balances, the winner is: charge cards.
  • Higher Credit Limits — Charge cards generally allow you to put more expenses on the card, either via higher credit limits or by waiving credit limits altogether. Why? Because you have to pay the balance off each month, so you are less of a risk. Credit cards, on the other hand, offer lower limits, because there is more of a chance that you’ll build up a balance that you will later have trouble paying. Winner: charge cards.
  • Rewards — Charge card reward programs are usually much more generous than those of credit cards, from double points to more desirable reward partners to free companion airline tickets and hotel upgrades, to free memberships in “elite” travel programs from airlines, hotels and rental car companies. Credit card reward programs are usually less generous, and the trend is continuing in that direction. Winner: charge cards.
  • Annual Fees — Charge cards almost always have an annual fee, while credit cards rarely do (though there are exceptions). If you want to avoid annual fees, choose: credit cards.
  • Insurance Coverage — Charge cards are more likely to offer free insurance coverages that will replace items you’ve purchased via the card, as well as certain travel protections. Credit cards usually have fewer insurance protections, if any.  Winner: charge cards.
  • Expense Tracking — Charge cards are more likely to furnish the small business owner with detailed expense records, allowing for easier tracking of past charges, as well as annual records that allow for tracking by spending category. This feature is useful to any business owner that has ever looked at a credit card statement and said “Who is Pers Tlv Srvcs that I paid $79.95 to?” Credit cards are more likely to provide this service today than in the past, but the winner here is still: charge cards.
  • Prestige? — While a charge card won’t make you a better person, some people do get a certain satisfaction out of flashing an American Express charge card, as it may suggest a certain credit level, business authenticity, or other nebulous grandiosity that potentially could impress someone. Credit cards, not so much. Winner: charge cards.

As you can see, both credit cards and charge cards have features to recommend them. However, as with everything in life, the perks come with a price – only you can properly assess the importance of each card feature to the success of your business. But if you now have a better understanding of the differences between the two, you’re one step closer to deciding.

Editor’s note:  this article was originally published at the OPEN Forum.

* * * * *

About the Author: Adam Jusko is founder of credit card comparison site Index Credit Cards, which is regularly referenced in publications including the Wall Street Journal, USA Today, BusinessWeek, Money Magazine, Newsweek, U.S. News & World Report, the Chicago Tribune, and more. Of particular interest to Small Business Trends readers is the section of Index Credit Cards devoted to business credit cards.

More in: 14 Comments ▼

Adam Jusko Adam Jusko is the Founder of credit card comparison site Index Credit Cards, which is regularly referenced in publications including the Wall Street Journal, USA Today, BusinessWeek, Money Magazine, Newsweek, U.S. News & World Report, the Chicago Tribune, and more. Adam is also the Founder & CEO of Bessed.

14 Reactions
  1. Martin Lindeskog

    Adam Jusko,

    What type of card would you suggest to a small business owner?

  2. Great read, thank you!

  3. Wow. Thanks Adam for this info. I’ve been planning to open a credit card. I’m wondering if we have charge cards here in PH. I’ll look for that. Thanks for introducing it to me.

  4. Interesting article. I was unaware of the differences so thank you for teaching me. 🙂 This was indeed a valuable read. I feel better knowing that I’m a little more knowledgable about the issue.

  5. So charge cards 6 (times a winner); credit cards 2 (times a winner). Yes, I do like keeping score. Great article – I’ve never really thought about the differentiation between the two. And in today’s environment, more than ever before, it’s important to thoroughly understand all forms of financing. Thanks.

  6. Hi Adam
    This is very helpful. I’ve always known there was a difference but never thought much about it. I appreciate you running through the pros and cons of it.

    p.s. This is a good historic post about trends in the credit card industry.

  7. Oh, and this more recent one is helpful by Justin McHenry.

  8. RedHotFranchises

    I recommend Capital One Visa Business Platinum credit cards for Small Business Owners.
    Capital One Visa Business Platinum with No Hassle Cash (SM) card is ideal for business owners who want to earn cash rewards and get an annual cash bonus on earnings. Cardholders will receive 1% cash back on all their purchases. Plus, they will be rewarded with a 25 percent bonus annually on all the cash back earnings from the prior year.
    A nice review of them can be found here:

  9. Most high interest credit cards are usually easy to get and really the interest rate only matters if you roll over your balances from month to month. People that have had bankruptcies, judgments or just have a bad credit rating, for what ever reason are the most common applicants for high interest credit cards.

  10. thanks for this useful information!!!
    As for me the main benefit of credit card is convenience. I believe using a credit card is a better idea because of the protection afforded by law.