12 MAY, 2023

You must have heard about charge cards. Do you really know what is a charge card? If not then this blog is for you. Let’s begin with defining the term “charge card” and understanding charge card meaning.

A charge card is a type of credit card that requires the cardholder to pay off the balance in full every month, rather than allowing for a revolving balance. This means that the cardholder cannot carry a balance from month to month, and must pay the entire balance owed by the due date.

Features of a Charge Card

  • Charge cards often have higher credit limits.
  • They offer travel benefits and membership rewards programs. This means you can opt for charge card payment to avail the benefits of these programs.
  • They may also come with higher fees and stricter qualification requirements, such as a high credit score and income level.

Benefits of a Charge Card

So now that we are clear with charge card meaning, it’s time to get familiar with its key benefits. Here are the many benefits of a charge card:

1. Helps manage spending

Charge cards require the balance to be paid in full each month, which can help cardholders stay on top of their spending and avoid accumulating debt.

2. Higher credit limits

Another key benefit of a charge card is that they come with higher credit limits than traditional credit cards, which can allow for larger purchases and greater flexibility.

3. Rewards and benefits

They may offer rewards such as cash back, travel rewards, and membership rewards programs.

4. Enhanced security

Charge card payments typically come with advanced security features such as fraud monitoring and zero liability protection.

How do Charge Cards Work?

Now that we have understood what is a charge card, let’s dive further into how it works. A charge card works by allowing a cardholder to make purchases up to a certain credit limit, with the requirement that the balance must be paid in full by the due date each month. Unlike traditional credit cards, charge cards do not allow for revolving balances, meaning that the cardholder cannot carry a balance from month to month.

  1. When using a charge card to make a purchase, the cardholder presents the card to the merchant, who then processes the transaction in the same way as a credit card purchase. The cardholder signs a receipt or enters a PIN, and the transaction is recorded by the merchant.
  2. At the end of the billing cycle, the charge card issuer sends a statement to the cardholder that includes the balance owed for the month.

Differences between Charge Cards and Credit Cards

Here are the key differences between charge cards and credit cards:

1. Payment Terms and Interest Rates

The main difference between charge cards and credit cards is the way the balance is paid off. Charge cards require the balance to be paid in full each month, while credit cards allow cardholders to carry a balance from month to month and pay interest on the balance owed.

2. Credit Utilisation and Credit Score Impact

Since charge cards do not allow for revolving balances, they do not impact credit utilisation or credit scores in the same way that credit cards do. With a charge card, credit utilisation is always 0%, while with a credit card, it can vary depending on the balance owed.

3. Rewards Programs and Fees

Charge cards may offer more exclusive and high-end rewards, such as access to airport lounges and personalised concierge services.

Which One Should You Choose?

When choosing between a charge card and a credit card, there are several factors to consider. Here are some keywords to keep in mind:

1. Personal Spending Habits

Your personal spending habits can play a role in determining which type of payment card is right for you. If you tend to carry a balance from month to month, a credit card may be a better fit since it allows for revolving balances and offers more flexibility in payment terms. However, if you prefer to pay off your balance in full each month, a charge card may be a better choice since it does not allow for revolving balances and can help you avoid accumulating debt.

2. Financial Goals

Your financial goals can also influence your choice between a charge card and a credit card. If your goal is to maximise rewards and take advantage of exclusive benefits and services, a charge card may be the better choice. However, if your goal is to improve your credit score or manage debt, a credit card may be a better fit since it allows for more flexibility in payment terms and can help you build credit over time.

3. Fees and Interest Rates

Another important factor to consider with charge card payment is the fees and interest rates associated with each type of card. Charge cards typically come with higher annual fees than credit cards, but they do not charge interest on unpaid balances. Credit cards may have lower fees, but they do charge interest on unpaid balances, which can add up over time.

Also Read: Guide about Credit Card Reconciliation


Charge cards and credit cards are two types of payment cards that offer different features and benefits. Charge cards can be a good option for those who can afford to pay off the balance in full each month and want exclusive rewards and services. When choosing between a charge card and a credit card, it's important to consider your personal spending habits, financial goals, and the fees and interest rates associated with each type of card.


Q1. What are the drawbacks of using a charge card?

The main drawback of using a charge card is the requirement to pay off the balance in full each month, which can be a challenge for those with unpredictable income or unexpected expenses.

Q2. What is the credit limit for a charge card?

Charge cards typically do not have a set credit limit since the balance must be paid in full each month. However, some charge cards may have spending limits based on individual cardholder spending patterns.

Q3. Is there an annual fee for a charge card?

Yes, most charge cards charge an annual fee for membership, which can range from a few hundred to several thousand dollars depending on the card and its benefits.

Q4. Can I earn rewards with a charge card?

Yes, many charge cards offer rewards programs that allow cardholders to earn points, miles, or cashback for their purchases, which can be redeemed for various benefits and services.

Q5. Can I use my charge card to withdraw cash?

It's generally not recommended since it can come with high fees and interest rates, and may negatively impact your credit score.

Q6. Are charge cards accepted everywhere?

The major benefits of a charge card includes that charge cards are typically accepted at most merchants that accept credit cards, but there may be some exceptions or limitations based on the card network, merchant policies, or local regulations.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.