If you want to open a new credit line to add a new payment method to your wallet or build credit, you may be debating between a charge card and a type of credit card. Each of these work differently, so you must understand the differences before you make your decision.
What is a Charge Card?
Typically, when people hear the words “no preset spending limit,” they assume a charge card has unlimited funds. A charge card has no preset spending limit, which means your maximum limit is undisclosed and can vary from month to month. With a charge card, your issuer will regulate your limits depending on your payment history, income, and spending habits.
Charge cardholders are required to pay off their balance in full each month. Otherwise, some serious late fees and penalties can rack up. Unlike credit cards, charge cards don’t have annual interest rates (APRs). However, if a person fails to pay their credit card balance in full and on time, hefty late fees will apply, usually a flat fee or 3% of the total balance. A 3% monthly charge might not seem like much at first, but it can add up to more than double what you would be paying in interest with a credit card.
Because charge cards don’t have annual percentage rates, issuers charge an annual fee that can be hundreds of dollars. American Express Canada is the primary charge card issuer in Canada, offering three cards: the American Express Gold Rewards Card, the Platinum Card, and the American Express AeroplanPlus Platinum Card. Canadians interested in getting a charge card should note that the average credit score for approval is around 690.
Pros of Charge Cards
There are many reasons some Canadians prefer a charge card to a credit card. Here are some of the main ones.
- More purchasing power: Cardholders can make significant payments on charge cards without having to worry as much about going over monthly limits.
- Spending discipline: Committing to full payments each month can teach users better financial discipline.
- Bonuses and rewards: Charge cards often have generous bonuses and rewards for cardholders, including eligible travel and everyday purchase points, as well as bonus signup points.
- No APRs: No APRs mean cardholders aren’t required to pay annual interest rates on borrowed money.
Cons of Charge Cards
Just like with anything, there are always some negatives. While charge cards are a great option for some, they may not be the right choice for others. Here are some reasons why.
- High annual fees: Because charge cards don’t have APRs, users are required to pay an expensive annual fee.
- Costly late penalties: Unlike credit cards, users can’t make minimum payments on charge cards to avoid late fees. If a cardholder fails to make a monthly payment in full, the late fees are steep, and the card issuer’s reports of late payments can negatively impact your credit score.
- Fewer options: Charge card options are limited in Canada. Unlike credit cards, which offer thousands of options, there are only a few charge cards available to consumers.
- Not suited to subprime: Since charge cards are typically reserved for customers with above-average credit, they are not a viable credit-building option for customers with bad credit.
What is a Credit Card?
Credit cards are a popular form of lending that allows cardholders to make purchases up to the pre-approved limit. Unlike charge cards, unsecured credit cards don’t have to be paid off in full each month—only preset minimum payments are required. This ability to delay payments can be both negative and positive, depending on your financial situation and spending habits.
Credit cards come with annual percentage rates (APRs), and you can avoid paying this interest if you pay your credit card bill in full every month. As long as you keep making on-time payments, credit cards are ideal for building credit as well as your overall credit health. Low-credit individuals now enjoy an easier time getting approved for unsecured cards based on the card’s credit limit. You can also earn rewards or even earn points on most credit cards. These can be redeemed in certain amounts to pay the balance or for rewards.
Financial institutions across Canada, like banks and credit unions, have been introducing credit card options for Canadians with less-than-perfect credit. There are tons of credit cards available to Canadians in all types of financial situations. Still, if rebuilding your credit is a top priority, Capital One credit cards offer affordable rates and monthly payments that are ideal for customers with less-than-perfect credit. They offer both secured and unsecured credit cards.
Pros of Credit Cards
In most cases, Canadians must get a credit card more than any other financial product. Not everywhere takes Visa debit, and even a small limit can go a long way. Here are some other pros:
- The power to pay later: Credit cards offer a secure way to pay and put spending power in your pocket. There are obvious benefits to having access to this payment method when you need it.
- Rewards programs: Many credit cards offer rewards programs, including cash back and point systems that can help you earn airline tickets, hotel stays, and more. The higher your credit score, the more rewards and perks you can qualify for.
- Credit-building opportunities: Consistent on-time payments can help build your credit rating, as payment history and debt utilization ratio are large components that determine your credit score. Unlike charge cards, which are usually available only to people with above-average credit, credit cards are available to customers across the credit spectrum. (Please note: Prepaid credit cards do not help you build credit. We cover prepaid credit cards below.)
Cons of Credit Cards
- Buy now, pay later: When you buy now and pay tomorrow, tomorrow always seems so far away. Credit cards make it a little too easy to make purchases you can’t afford, so there’s a level of discipline required with them.
- Overdraft penalties: Although credit cards have a set limit, cardholders can sometimes exceed it. Spending more than your limit means you can incur costly overdraft penalties.
- Interest: Unlike charge cards, credit cards come with an annual percentage rate, and high APRs can lead to hefty interest fees if you only make minimum payments and choose to carry the rest of the balance over to the next month.
Credit Cards vs Charge Cards
A charge card is a preferable option to a credit card if you spend a lot of money for personal or business purposes and know you can pay it off in full each month. On the other hand, credit cards can offer greater repayment flexibility and clearer guidance on how much you can spend. The table below highlights the main differences between charge cards and credit cards.
| Credit Cards | Charge Cards | |
| Payment Terms | Customers are not required to pay off their total balance in full each month, but must make minimum payments to avoid late fees. | Customers are required to pay off their total balance in full each month. |
| Spending Limits | Card issuers will approve an applicant’s spending limit based on their overall credit history, and cardholders are unable to spend more once their limit is reached. | There is no maximum credit limit for charge cards. Card issuers will determine the preset limit of a charge card based on a borrower’s income and credit history. |
| Fees | Credit card fees include late payment fees and interest. Cardholders can avoid late fees by making minimum payments by the due date, and they can avoid high APRs by paying their balance in full every month. | There is no annual percentage rate with a charge card. Fees for late payments typically include a flat rate predetermined by the card issuer, depending on the card’s terms and conditions. Charge cards also have an annual fee, which varies by issuer. |
| Available Options | There are many options available to customers with low or high credit scores. | Very few charge cards are available, which means Canadians don’t have many options. Also, charge cards are typically reserved for customers with above-average credit. |
What is a Secured Credit Card?
Secured credit cards are a form of secured credit issued by a financial institution and backed by collateral. A secured card acts like a regular credit card in almost every respect, except that you agree to place a security deposit equal to the limit amount when you apply. The fine print will specify what their secured cards require, including interest charges and other pertinent information.
Secured credit cards are an excellent option for subprime Canadians who have lower-than-average (or no) credit scores. Because the card is secured by collateral, customers usually have a much better chance of being approved and of establishing or rebuilding their credit profiles.
Details on this line of credit are reported to the credit bureaus, and when you consistently pay off your balance, your credit score will gradually improve. For secured credit cards, applicants pay interest on outstanding balances. However, each credit card is different and will have its own set of details in the credit agreement.
What is a Prepaid Credit Card?
With a prepaid credit card, you load funds onto the card from your bank account and make purchases until the funds are gone. You can then load more money on the card whenever you like. There is no monthly payment and no interest to pay, so you don’t have to worry about the end of the billing cycle. Essentially, it’s a debit card that you use to make debit card purchases. It’s treated similarly to a chequing account with standard monthly fees that aren’t based on how you spend money.
Prepaid credit cards, essentially prepaid debit cards, are a safe payment method if you are travelling overseas and are accepted internationally. You also don’t have to worry about debt since you can only spend when you deposit money onto the card. However, since you are not borrowing money, prepaid credit cards will not help you build up your credit profile and don’t add a credit line to your account. When it comes to charge cards vs prepaid credit cards, prepaid cards have much lower fees.
The Best Card To Build Credit
Besides the prepaid variety discussed above, credit cards and charge cards offer fantastic credit-building opportunities. With both methods of payment, you get the opportunity to prove you can make payments consistently and on time. Proving your trustworthiness will build your credit score over time.
However, one of the key factors that determines your credit score is the debt utilization ratio. Your debt utilization ratio compares how much credit you’re using against how much you have available. Since charge cards don’t officially have a maximum limit, credit bureaus won’t look at the debt utilization ratios of charge cards. Therefore, credit cards may be preferable for credit-building.
However, if you have bad or no credit, it can be difficult to get approved for a charge card or credit card with high spending limits. There are ways to get a credit card with bad credit in Canada. You need to start small and work your way up.
Cards Vs Overdrafts
While overdrafts are very common in Canada, you also need to have a good credit score to get one. If you don’t have a good credit score, then it’s important to have a good relationship with your bank. If that’s the case, you may not need to meet the minimum credit score requirement.
However, overdrafts don’t really replace a card. Cards are used to build your credit score and for everyday spending. The point of an overdraft is to cover emergency expenses and to pay it off as soon as possible. If you don’t, you could end up with some heavy overdraft fees. However, you can also pay a lot of interest if you don’t pay your cards on time.
The Best Option to Rebuild Your Credit
When it comes to rebuilding your credit score, a secured credit card is your best option. This is because they work just like traditional credit cards, but you have to put down a security deposit. With most cards, the deposit is based on your credit card limit. You can then use your credit card like normal and pay it off. Once the card is paid off and cancelled, you’ll receive your deposit back.
This helps your credit because every on-time payment is then reported to the credit bureaus. If you keep your utilization low and make your on-time payments every month, then you’re going to slowly see your credit score increase.
Secured Card Deposit Minimums and How They’ve Changed in 2026
For secured credit card accounts, security deposit minimums vary by credit card issuer. This refundable security deposit is optional and can range from $0 to $500. If you choose to go higher than this, then you can. They often have maximum numbers as well.
Most secured credit cards haven’t had many changes in their minimum security deposit over the last few years. However, the annual and monthly fees have gone up. You also need to consider foreign exchange fees and foreign transaction fees that may occur.
New Prepaid Card Options Launched in 2026
When it comes to prepaid credit cards in Canada, there are many to choose from. However, two new ones in 2026 stand out.
EQ Bank Prepaid Mastercard: With the EQ Bank Prepaid Mastercard, you can load money, earn cash back, and make online purchases. You can use it like a traditional credit card; however, you can also make cash deposits, and nothing will be reported on your credit file. It’s essentially a bank account that offers some features of a credit card.
Wealthsimple Prepaid Mastercard: If you’re looking to avoid credit card debt and not add anything to your credit report, then this could be a good option for you. There’s no credit check required, no annual fees, no foreign exchange fees, and you can have access to physical and virtual cards. While it is essentially a bank account, the card is used just like a credit card. While there aren’t cash back rewards, you do earn interest on your balance.
Are Charge Cards Still Relevant
Yes, in fact, charge cards are still relevant and great for premium travel rewards and business expense management. However, you do need to keep in mind that these represent a niche market compared to traditional, secured, and prepaid cards. There’s often an income limit and other qualifying factors.
Some of the key differences for charge cards compared to other cards include:
- No pre-set spending limits
- Premium travel perks
- Business expense management
The Best Option for Newcomers to Canada
As a newcomer to Canada, the first thing that you want to do is build a credit history. Secured credit cards report to the credit bureaus, no matter what credit score you have, including poor credit. A secured credit score works by having your payments reported to the major credit bureaus. Many secured credit cards also offer incentives for newcomers to help with the transition.
How KOHO and New Prepaid Cards Compare
While KOHO is technically a prepaid credit card, it works differently from most prepaid cards. In fact, it combines the features of secured credit cards with the benefits of a prepaid credit card. The difference is that secure credit cards require a deposit, and this card doesn’t. You also don’t have to worry about cash advances since you’re using your own money.
Like many of the best secured credit cards, the KOHO prepaid Mastercard offers credit-building capabilities. However, you do have to pay for this service, and it is included in the type of account you choose. With KOHO, there are 2 accounts to choose from, each offering different cashback amounts. When you sign up for an account, you can choose the one that best suits your situation.
Best Secured Cards that Report to Both Credit Bureaus
When choosing a secured credit card, the best option is one that reports to both credit bureaus. The top 3 that do this include:
How Amex Charge Cards Work for Canadians
If you are getting an American Express charge card in Canada, there are some things that you need to consider. These include:
- They have no pre-set spending limit
- The balance must be paid in full every month
- There are flexible payment options that allow you to carry a balance on certain large items
- There is no revolving credit penalty
Switching from Secured Cards to Unsecured Cards
If you’re looking to switch from a secured credit card to an unsecured credit card, it’s recommended that you have the secured card for a minimum of 6 to 12 months to see the full benefits. You should also have made consistent, on-time payments and kept your credit utilization below 30%. You should also have a minimum credit score of 700, which you can check for free.
How Spring Can Help?
Some card issuers have made it easy for subprime customers to get approved for a credit card. Capital One offers fantastic options for customers looking for simple ways to build credit.
If you have a low credit score, attaining any line of credit, including an installment loan, can help you rebuild your score. Spring Financial offers personal loans up to $35,000 for Canadians facing all types of credit situations. Take a couple of minutes right now to fill out the free online application form to see what you could be approved for!
