Understanding the Difference: Charge Cards vs. Revolving Credit Cards

When launching a credit card program, you’ll need to decide whether to offer a charge card or a revolving credit card.

Plenty of our prospects have asked about these two card types, their differences, and which is a better choice for their customers. While there’s a lot of great information out there explaining the differences and advantages, few do so from the card company's point of view.

If you’ve ever been confused by these terms, the good news is that you’re not alone! Let’s explore the difference between a charge card and a revolving credit card and which might be the best for your business.

What is a Charge Card?

A charge card is a type of credit card that requires cardholders to pay the full balance every month by the due date. There is no interest rate because cardholders cannot carry a balance from one month to the next. The lack of interest charges is one attractive element of the charge card to consumers who opt for it, as this can often allow them to accrue rewards without the accumulating cost of interest. However, because the full balance must be paid off each billing cycle, cardholders who choose this card should be those who can afford to pay back what they spend immediately.

Why Might You Offer a Charge Card Program?

The defining feature of charge cards – their lack of an APR (annual percentage rate) – is both their strength and weakness. If you choose this option, you won’t see the revenue benefits of interest charges, but you do reduce your overall cost of capital since your customers have agreed to pay you back at the end of each billing cycle. It’s also likely that the credit risk on your portfolio is lower because your customers know they need to pay in full each billing cycle.

Our customers who typically select these cards are either crafting credit-builder programs for consumers looking to establish a repayment history with lower risk or are in a highly specific niche, like fuel payment, where every cent per gallon matters and interest payments increase the cost of capital too much.

Charge cards can be used for both consumer payments (such as the example of the credit builder card) and commercial payments (such as the example of the fuel payment card). Highnote supports both consumer and commercial charge products, and you can read more about the technical elements of each type here: Highnote Consumer Charge, Highnote Commercial Charge.

What is a Revolving Credit Card?

A revolving credit card, the most common type of credit card, allows cardholders to carry a balance from month to month with interest accruing on the unpaid portion. Cardholders can pay a minimum amount, the full balance, or anything in between. This flexibility makes revolving credit cards particularly appealing for those who prefer to manage cash flow over time. That said, the accruing interest of a revolving credit card means it costs more overall to pay, and cardholders who take on too much credit from a revolving credit card risk negatively affecting their credit score.

Why Might You Offer a Revolving Credit Card Program?

Just as the lack of APR is the strength and weakness of a charge card, having an APR is the strength and weakness of a revolving credit card. If you choose this option, you get the additional revenue from interest charges on the revolving balance. However, you also have an increased cost of capital to hold those receivables that your customers are revolving on for a longer time, which could have increased the credit risk of your customer base. In addition, customers who want to revolve can be riskier from a repayment perspective than those who pay in full each month.

We tend to notice that our customers who select a revolving credit card program are specifically interested in the flexibility and broad appeal of revolving credit, which drives greater spending and strengthens the brand’s relationship with the cardholder. For example, a company may launch a revolving credit card for a fitness brand. The card's flexibility drives spending, while tailored rewards accrued for making health-related purchases might drive the card to the top of a cardholder’s wallet.

Like with charge cards, revolving credit cards can also be used for both consumer and commercial payments, both of which Highnote supports (consumer revolving credit is our newest offering; read about our launch here!)

Making the Right Choice for Your Business

The decision to offer charge cards, revolving credit cards, or both depends on your business model, risk tolerance, and the financial habits of your target customers. Understanding the pros and cons of each can help you align your offerings with your strategic goals and effectively meet your customers' needs. Luckily, the team of experts at Highnote have decades of experience in setting up and managing both card types, so whichever you choose, know that we can help you every step of the way.

If you’re curious to know more about charge cards versus revolving credit cards and which might be right for you, reach out to our sales team today!