Business credit cards vs. charge cards — which is right for you?
Editor's Note
Business credit cards can be a great way to amplify your travel rewards strategy. Most come with generous welcome offers, bonus points on purchases that personal cards do not and other perks to help you meet your travel goals — all while keeping your personal and business expenses separate.
At this point, many rewards cards, both personal and business ones, tend to be credit cards. However, some of the most popular business cards are charge cards. Many people use the terms "credit card" and "charge card" interchangeably. However, the two are very different products.
Understanding how credit cards differ from charge cards is essential for determining which product is right for your business.
We explore business credit cards and charge cards to help you decide which one to choose.
What is a business credit card?
Business credit cards function the same way as personal credit cards. As a business cardholder, you receive a preset credit limit to use to make purchases for your business. As with any credit card, you can't spend over your credit limit. However, because the credit revolves, when you make a payment, you free up available credit for additional purchases.
You have the flexibility to carry a monthly balance but will have to pay interest charges if you do not pay your balance off in full each month.
Related: What is APR on a credit card?
What is a business charge card?
A business charge card allows you to make purchases and pay expenses. However, unlike a business credit card, you must pay your balance in full every month — you cannot carry it forward. Also, some charge cards have no preset spending limit and adapt to your business's spending patterns.
Related: Do I need a business to get a business credit card?
Business credit and charge card similarities
Before we examine the differences, let's start with the similarities between credit and charge cards. Both are lines of credit extended to you by a financial institution. You use your personal credit history and score to apply for either type of card. Both will report your activity to the credit bureaus.
You can charge purchases to either card type, and each acts like a short-term loan from your issuer. At the end of your billing cycle, you are expected to repay the amount you borrowed for that month, though it's not mandatory with a credit card (more on that later).
Many credit cards and charge cards also offer rewards in the form of cash back, points or miles and other benefits. Both can charge annual fees, late fees and foreign transaction fees.
In short, the two types of cards look very similar but are not quite the same.
Related: Building your business credit: 5 steps to success
Business credit and charge card differences
There are two major differences between credit cards and charge cards. The first is that credit cards typically let you carry a balance from month to month, whereas charge cards do not. The second is that credit cards tend to have preset spending limits, while most charge cards do not. Now, let's get into the specifics.
Carrying a balance
In terms of balances and billing cycles, when you use a credit card for purchases, you receive a statement at the end of each billing month showing you your total balance and a minimum amount due that is generally a small percentage of that balance.
You can pay any amount between the minimum payment and the full balance and carry the rest to the next month.
However, you will accrue interest on the amount that remains unpaid. As long as you pay the minimum each month and don't exceed your total spending limit, your issuer should keep your account open and consider it in good standing.
With a charge card, you must pay off your statement in full each month. If you don't, the issuer will charge a late fee (typically 3% of your balance), which might prevent you from making additional purchases on the card until your balance is paid in full.
Charge cards do not accrue interest since you cannot carry a balance or take advantage of balance transfers to or from your account. However, some charge cards now offer a "pay over time" feature that acts like a credit card, with finance charges based on your time frame.
Because financial institutions do not earn money on interest, they tend to have higher annual and other fees.
Spending limits
As mentioned, when you apply for a credit card, a financial institution assesses your creditworthiness and extends you a line of credit with a limit. This is significant because one of the main factors determining your credit score is your debt-to-credit ratio.
As you make purchases with your card, your debt amount rises against the overall credit limit. This can increase your credit utilization ratio and potentially lower your score. And remember, many small business owners use their personal credit to guarantee a business credit card. So, the activity on your business credit card can impact your personal credit score.
By contrast, charge cards do not have preset spending limits. That's not to say you can charge any amount you want on them at any time, nor that there are no limits whatsoever. Rather, this is intended to give cardholders the flexibility to make large purchases without prior authorization or further credit checks to increase their limit.
Card issuers may limit their cardholders' spending and adjust it based on purchase habits and changing financial situations. However, because charge cards do not have conventional credit limits, your spending activity doesn't have the same impact on your credit utilization as a regular credit card.
That said, charge card issuers report other factors to credit bureaus, such as credit and payment history, which can impact your credit score.
Related: 6 business credit card tips everyone should follow
Which type of card is right for you?
The right card for you depends on your business needs and spending habits. Generally speaking, it's easier to apply and get approved for a credit card, so those new to credit should go that route. Charge cards usually require applicants to have very good to excellent credit to be considered.
A credit card can also be easier to get because there are more out there. Only a handful of issuers offer charge cards with no preset spending limit these days, while the major banks all offer business credit cards.
Note that non-Amex cards, such as Visa or Mastercard, tend to be more widely accepted. So, if you travel a lot, having another option in your wallet might be good.
If you know you will need to carry a monthly balance, a credit card will give you the flexibility to do so. Plus, a fixed credit limit might help you better manage your spending.
On the other hand, if you can pay off your balance in full each month and want the flexibility to make large purchases without preset limits from time to time, a charge card might be a better choice for you.
Also, while American Express limits you to a maximum of five open credit cards, it does not appear to limit the number of no preset spending limits cards you can carry. Thus, applying for no preset spending limit cards instead of credit cards could be a good way to continue getting welcome offers and maximizing rewards. Always responsibly, though!
Related: 9 reasons to get a business credit card
Our picks
Now that you know how credit and no preset spending limit cards compare, here are a few current business options you might want to consider.
Credit cards
There is no shortage of great business credit cards. Here are just a handful of the top ones.
Ink Business Cash® Credit Card: With this premium business card from Chase, you can earn $350 after you spend $3,000 on purchases in the first three months your account is open and an additional $400 when you spend $6,000 on purchases in the first six months after account opening.
Also, earn 5% cash back on the first $25,000 spent in combined purchases each account anniversary year at office supply stores and on internet, cable and phone services. Get 2% cash back on the first $25,000 spent in combined purchases each account anniversary year at gas stations and restaurants.
Get an unlimited 1% cash back on all other purchases. This card does not have an annual fee. To learn more, check out our full review of the Ink Business Cash card.
Apply here: Ink Business Cash
Ink Business Preferred® Credit Card: This card is currently offering a sign-up bonus of 90,000 Ultimate Rewards points after spending $8,000 on purchases in the first three months from account opening.
Cardholders earn 3 points per dollar spent on the first $150,000 of combined spending on travel, shipping, social media advertising and internet/cable/phone services each account anniversary year, plus 1 point per dollar spent on all other purchases.
The card also offers cellphone insurance when you use it to pay your (and your employees') cellphone bill, and primary rental car insurance. You can get employee cards at no additional cost and pay no foreign transaction fees. The annual fee is $95.
Read our full review of the Ink Business Preferred card to learn more.
Apply here: Ink Business Preferred
Marriott Bonvoy Business® American Express® Card:
Right now, with the Bonvoy Business Amex, you can earn five free night awards after using the card to make $8,000 in eligible purchases within the first six months of card membership. Each free night award has a redemption level of up to 50,000 Marriott Bonvoy points at hotels participating in Marriott Bonvoy. Resort fees and terms apply. Offer ends Oct. 16.
Earn 6 points per dollar spent at participating Marriott properties; 4 points per dollar spent at restaurants worldwide, U.S. gas stations, shipping purchases and wireless phone services purchased from U.S. providers; and 2 Marriott Bonvoy Business® American Express® Card points per dollar on all other eligible purchases.
Receive one free award night every year after your account anniversary. The offer is good for stays costing up to 35,000 points. Also, enjoy complimentary Gold Elite status in the new Marriott Rewards program. The card has a $125 annual fee (see rates and fees). To learn more, read our full review of the Marriott Bonvoy Business Amex card.
Apply here: Marriott Bonvoy Business Amex
Southwest® Rapid Rewards® Performance Business Credit Card:
Earn 80,000 bonus points after you spend $5,000 on purchases in the first three months from account opening.
Get 4 points per dollar spent on Southwest purchases and 3 points per dollar on Rapid Rewards hotel and car rental partner purchases; 2 points per dollar spent on social media and search engine advertising, internet, cable, and phone services, local transit, commuting and ride-hailing services; and 1 point per dollar spent on everything else.
You'll receive an anniversary bonus of 9,000 points and up to four A1-A15 boarding passes each anniversary year. This card has a $199 annual fee. To learn more, read our full review of the Southwest Performance Business card.
Apply here: Southwest Rapid Rewards Performance Business Credit Card
Charge cards
As mentioned, there are far fewer cards with no preset spending limit, but here is an excellent one worth considering.
Capital One Venture X Business: Earn 150,000 bonus miles when you spend $30,000 within the first 3 months of account opening.
Earn unlimited 10 miles per dollar on travel booked through Capital One and 2 miles per dollar on all purchases. This card also comes with a $300 annual travel credit.
This card has a $395 annual fee and no foreign transaction fees (see rates and fees). To learn more, read our full review of the Capital One Venture X Business.
Bottom line
Getting a business card can help you maximize your spending and meet your travel goals. However, whether a credit or a charge card is the right choice for you will depend on your spending and payment habits, your credit score and history, and what kinds of purchases you need to make with your card.
Once you understand the differences between the two types of products, though, there are plenty of great choices in each category.
For rates and fees of the Capital One Venture X Business, please click here.
For rates and fees of the Marriott Bonvoy Business American Express Card, please click here.