Business Credit Cards vs Charge Cards: Which is Right for Your Business?
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Is your business better off with a charge card or a credit card? Does it matter? Yes. Read this article to learn the important differences.
At the end of this article, we'll highlight some of the latest credit card and charge card promotions for small business owners.
Why Even Use a Separate Business Credit Card or Charge Card
Using a business credit card or charge card makes smart business sense. These cards help businesses leverage credit and/or get rewards for the things they buy.
Even sole proprietors, like freelancers and independent contractors, can benefit from using a separate business credit card or charge card.
- Business cards typically have spending rewards categories that are more in line with common business expenses, like office supplies and phone charges. Business owners who use them will therefore see their rewards multiply more quickly than if they stick to a personal credit card with a rewards program that’s more focused on groceries and department-store purchases.
- Plus, it just makes sense to keep your personal and business finances separate, both for record-keeping purposes and for taxes.
But there’s one matter you should figure out before you start comparing cards — should you go with a business credit card or a charge card?
Not sure if your business needs a credit or charge card? Even the smallest of businesses, like side Etsy projects, can benefit from having accessible credit. See how to choose a small business credit card.
People often group these two card types together, but there are key differences you should know before you apply.
The benefits may surprise you. Read on.
Charge Card vs Credit Card
Both cards have a similar premise: You get a short reprieve between when you buy something and when you have to fork over the cash for it. However, charge cards have a slight distinction that can be beneficial, depending on how disciplined you are about paying your bills and how much you need to keep your business spending in check.
How They’re Similar
With either a charge card or a credit card, the bank pays for your purchase and you’re expected to pay it back.
Like credit cards, you can find charge cards that offer sign-up bonus rewards and ongoing rewards. Also like some credit cards, charge cards may also charge an annual fee.
How They’re Different
The distinction comes down to how long you have to pay off the debt you accrue.
Balances and How You Pay:
- Credit cards let you carry a balance (with interest):
With a credit card, you’ll always want to pay off the balance every month, but you have the flexibility of taking your time when necessary (and pay interest charges for the privilege).
- Charge cards are due in full:
Charge cards are less forgiving; they want you to pay right away, by the due date, or you’ll have to pay an expensive late payment fee and you may have to give up ownership of the card if you keep missing payments.
So why would you even consider a charge card? Keep reading to find out.
Credit Limits and How You Spend:
Another big difference is in the credit limit.
When you first sign up with a credit card, you may be surprised how little the credit card issuer trusts you by limiting how much you can put on the card.
However, with a charge card, there is no predetermined credit limit. For some people, that wide berth can be great, giving them leeway if they ever need to make a large purchase in the future. Keep in mind, no predetermined credit limit does not mean unlimited spending. Your purchasing power usually adjust based on your card usage, payment history, credit history, and other factors.
Reasons to Get a Charge Card
- You can’t stand interest charges. With a charge card, you’re using a payment method that won’t cost interest as long as you pay when you’re supposed to. Unlike credit cards, you don’t have the threat of interest charges hanging over your head.
- You know you can control your spending. Do you pride yourself on never spending beyond your means, and are you determined to use that philosophy for your business? Having a charge card can prompt business owners to stay disciplined, as they know they’ll have to pay off every purchase they make within a few weeks.
- Unique benefits. While you lose the ability to carry a balance, many business charge cards come with unique benefits.
For example, the Business Platinum® Card from American Express OPEN, a CreditDonkey advertiser, includes Global Lounge Collection, Airline Fee Credit, and Platinum Concierge Service. These travel-friendly benefits come at a price though. There is a $450 annual fee. If you are a frequent business traveler, read the 10 reasons why the Business Platinum Card is worth it.
Another business charge card, the Plum Card from American Express OPEN, a CreditDonkey advertiser, offers a 1.5% discount when you pay early. While there is no cap on how much you can earn back by paying early, there is a $250 annual fee ($0 introductory annual fee for the first year) to keep in mind. If your business spends more than $1,389/month, read this Plum Card review to see if this charge card is right for your business.
Reasons to Get a Credit Card Instead
- You need flexibility in your cash flow. While you usually strive to pay off your balance in full each month, sometimes your business needs the flexibility to repay the balance over time. That's when a credit card comes in handy since there's no hard deadline to pay off the entire balance as long as you make at least the minimum payment each month.
This feature comes in handy when your business needs to make a large purchase.
- You want a promotional interest rate. Many business credit cards have a promotional interest rate to entice new customers to sign up. You’re not going to find that with a charge card.
- It’s what you’re already used to. If you have used only personal credit cards for your personal spending, you may want to stick with what you already know — a business credit card. A charge card is similar enough where it shouldn’t be confusing — but as a business owner, you have things to deal with.
Which One Is Right for You?
Do you want the flexibility of a credit card to pay over time?
Or do you prefer the unique benefits that many charge cards offer? Will you always be able to pay off your balance each month and if there is a time when you can’t, will you be able to withstand the hefty late payment fee you’ll get stuck with? That’s a key question to ponder as you weigh the pros and cons of credit cards vs. charge cards.
Terms and limitations apply. For more information, click on the "Apply Now" button to visit the issuer's website.
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Sarah Johnson is the senior editor of CreditDonkey, a credit card comparison and financial education website. Write to Sarah Johnson at firstname.lastname@example.org. Our data-driven analysis has been recognized by major news outlets across the country and has helped small business owners make savvy financial and lifestyle decisions.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved or otherwise endorsed by any card issuer. This site may be compensated through the Advertiser's affiliate programs.