Have you ever wondered what the difference was between charge cards and credit cards? Many people use these terms interchangeably, but there actually is a difference. And while business charge cards aren’t as popular as they once were, they’re still being offered and it’s important to know how they are like business credit cards, and how they are different.
How a charge card works
A charge card is a method of payment that allows customers to make multiple purchases, while making a single monthly payment for all of their charges. For over 100 years, individual merchants offered some customers charge accounts, similar to a proverbial (or actual) “bar tab.” In 1950, Diner’s Club was the first to offer a charge account that could be used at multiple merchants. American Express began issuing charge accounts in 1957 that were associated with a plastic card that’s similar to what we see today.
Five differences between a charge card and a credit card
1. You must pay your card in full each month.
The key characteristic of a charge card is that cardholders are expected to pay each month’s statement balance in full. Therefore, you won’t see any standard interest rate associated with these cards, although there are penalties for failing to pay your balance in full. For those who always avoid interest by paying their credit card’s monthly statement balance in full anyways, this isn’t a concern. Yet for those who rely on their credit card to finance purchases and plan to carry a balance, a charge card will not meet their needs.