What is a charge card, and how is it different from a credit card?

If you’ve ever been researching credit cards, you might have come across something called a charge card. So what exactly is the difference, and why would you choose a charge card?

The simplest way to explain the difference is that a credit card charges interest on any balance left owing at the end of your statement period. A charge card doesn’t charge interest, but you cannot leave a balance owing at the end of your statement period. Need a little bit more clarity? Let’s break it down.

Charge cards and credit cards

To the credit card newbie, there might not seem like a lot of difference between the two. There are actually quite a few things to take note of that make a world of change. These include:

• Credit limits (and lack thereof): Most credit cards will have a set limit you can borrow, which tends to be higher depending on how much you pay for your credit card. In contrast, most charge cards have no preset spending limit. This could be a good or a bad thing, depending on your ability to manage money.

• Purchase rates: The average credit card purchase rate in the Mozo database is 17.01%, and this is the interest added on top of any balance remaining on your card at the end of the statement period. A charge card does not accumulate interest on a balance, because you cannot keep a balance owing on it. If you do not pay your balance in full, you could be charged high fees, or even have your card cancelled.

• Rewards: Charge cards tend to function similarly to rewards credit cards, offering perks to go along with a higher annual fee. The main difference is the lack of flexibility with repayment, but the trade off is that there is no interest.

Should I get a charge card or a credit card?

If you’re interested in choosing a charge card in Australia, your options are very limited. As of 2023 there is only one personal use charge card in the Australian market, though there are many more options for business owners looking for charge cards. 

This is possibly because charge cards tend to have much higher annual spend (thanks to a general lack of preset credit limits), which brings with it a much higher risk for providers that customers may not pay off their balances. There is a greater prevalence of charge cards in the US market, for example. 

If a charge card appeals to you because you never miss a repayment or have a balance owing at the end of the month, you may be suited to a rewards credit card or a credit card with no annual fee.

Rewards credit cards tend to have much higher purchase rates than other credit cards, but this shouldn’t impact you if you are consistently paying your balance in full each month. Likewise, a no annual fee card may carry a higher rate, but if you pay it off completely each month you can end up minimising fees and interest. 

With charge card options so limited in Australia, get started on your finance journey by checking out some of the credit cards below. To find some of our top picks, find Mozo’s Best Credit Cards.