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When it comes to business spending, you want to be sure that you’re using each dollar carefully. It’s not just about your budgets—it’s about making each dollar work for you. Depending on the tools you use, you can be improving your business credit, earning rewards, and protecting your purchases. 

Perhaps you have a card through your business bank account. But is that the right financial fit for you? Today we’re explaining the difference between credit cards, prepaid cards, and charge cards so you can understand which might be the best for your business (and the answer might be a combination!). Let’s get started.

Credit cards

Credit cards are the most common and probably the best understood, so we’ll start here. 

Credit card pros and cons

Pros Cons
  • Easy to get
  • Easy to use
  • Wide range of options
  • Purchase insurance
  • Easy to incur debt
  • Can damage credit score
  • Fees

Definition

Credit cards extend you a line of credit up to a predetermined limit, and will let you carry a balance month-to-month. Interest rates are determined by credit score, and accumulate on purchases not paid off during the monthly billing cycle. Minimum payments are a percentage of the outstanding balance, and are due at the end of each billing cycle. 

Perks

Credit cards offer attractive perks, such as cash back or redeemable points, especially for businesses. Specific cards exist to cater toward business needs, such as travel. For example, you can get a business travel credit card which provides miles for flights, flight insurance, airport lounge access, concierge services, and extra points for restaurants and transport purchases. Retail credit card issuers will often provide a discount for purchases, early access, or free shipping for purchasing their products or services with their retail credit card. 

Credit score impact

Credit cards can rapidly damage your credit score if used recklessly, but smart credit card usage can help boost your score. First, you need to understand the differences between personal credit scores and business credit scores. Business credit scores are an indicator of your company’s financial health and likelihood of defaulting on loans and credit. Responsibly using a business credit card will strengthen your credit history and credit score. 

Credit cards impact your credit score through

  • On-time or late payments
  • Credit utilization (you want to stay below 30% of your limit)
  • Age of account—older accounts are better, lots of new accounts are detrimental

Credit cards can harm your credit score if you’re frequently opening credit cards, making late payments, and using more than 30% of your available credit. Putting smaller amounts on business credit cards and paying it off regularly will help you build a strong credit history. 

Credit card fees

Fees vary widely, but most credit cards will feature some types of fees. There may be annual fees (higher annual fees usually means more lucrative rewards). Nearly every credit card out there will tack on late fees and overcharge fees for going over your balance or failing to pay by the billing cycle due date. 

Billing cycles

Generally a credit card will operate with a monthly billing cycle. Minimum payments will be based on your outstanding balance at the end of each billing cycle, and accrue interest on the unpaid balance after the grace period. Some credit cards will offer 0% APR for a set period of time (6 months, a year), which can be an attractive feature. 

Example

The American Express Business Platinum offers impressive rewards for hotels and restaurants, as well as flight miles and additional travel perks (like TSA precheck credit). It requires a $595 annual fee and a $15,000 minimum spend, but if your business relies on travel this is an effective option. 

Best for:

  • Building credit
  • Flexible spending
  • Access to credit in the long-term
  • Taking advantage of rewards

Need help choosing a business credit card? Check out our guide.

Prepaid card

Prepaid cards are less common than credit cards, but still have their place in American finances. Prepaid cards are especially helpful for building credit, or authorizing someone to make purchases without giving them too much freedom or access to credit. 

Prepaid card pros and cons

Pros Cons
  • Limit overspending
  • Better consumer protection than cash
  • Good for online purchases 
  • Can be used by individuals without bank accounts
  • Fees for loading, checking, and withdrawing money
  • Lacks rewards and perks

Definition

A prepaid card (or stored-value card) is one that is pre-loaded with funds before use, and is limited to the amount available for spending. Some types of prepaid cards are linked to a bank account, making them essentially function as debit cards, and may allow for overdraft fees and point accumulation through the card issuer. Other prepaid cards are independent of banks and can be loaded online or at a financial institution without opening or accessing a bank account. 

Perks

Perks can be slim with prepaid cards. Occasionally you may get discounts for using a branded prepaid card for purchases from that business. If you get a prepaid account through your banking institution you may be able to earn points or eliminate fees. 

Credit score impact

For good or bad, a prepaid account typically does not affect your credit score. If your credit score is terrible and you can’t get a credit card, a secured card might be a better option. Secured cards require a deposit and then spend like credit cards and build credit. 

Prepaid card fees

Unfortunately prepaid cards are liberal with their fees. You may encounter the following fees:

  • Activation fee
  • Loading fee
  • Transaction fee
  • ATM fees
  • Fees for checking your balance
  • Monthly maintenance fees

You could see 15%+ down the drain just by using a prepaid card, so make sure you read the fine print of the fees you’ll be assessed. 

Billing cycles

Billing cycles don’t really apply to a prepaid card, unless they require monthly maintenance fees to keep your card active. For your prepaid card, you’ll never have payment dates or minimum payments because you can load it at your will and spend until it’s gone. 

Example

To provide funds for traveling, remote, or temporary employees, a prepaid card can be very useful. The Netspend® All-Access® Account allows direct deposit, fee-free withdrawals, and no minimum balance. And unlike other prepaid cards, you can actually earn interest on your funds. 

Best for

  • Spending without accounts
  • Limiting the amount spent

Charge card

Charge cards amplify the best and worst parts of credit cards—you get unlimited credit, but you have to pay off the entire balance at the end of each billing cycle. 

Charge card pros and cons

Pros Cons
  • No limits
  • Large purchases
  • Amazing rewards
  • Must be paid off each month
  • Heavy fees if unpaid
  • Require excellent credit

Definition

Charge cards allow for flexible business spending and lucrative rewards and perks, but require payment in full at the end of the repayment period. This repayment period can vary based on your card issuer and the type of charge card, but are usually between 30-60 days. Failing to pay your outstanding balance each billing cycle can saddle you with harsh penalties and interest fees from the card issuer. 

The flexibility of a charge card makes it ideal for short term business cash flow, as well as managing employee spending. Depending on the credit limit of the charge card, it can also be a good option for building business credit.

Perks

Charge cards can still offer excellent rewards, especially when they’re issued by the store or vendor you use. Charge cards are also great for any business owners who need to spend large amounts without incurring fees or running into credit limits. The extremely high or nonexistent credit limit can be good for businesses who need to float charges until their contracts are settled up at the end of the month. 

Credit score impact

Business charge cards usually do not feature spending limits, which means the portion of your credit score determined by credit utilization will be unaffected. This can be good or bad, depending on your unique credit situation. Because there is no limit, it won’t negatively impact you if you’re already using more than 30% of your available credit. But, because there is no limit, it can’t help you if you’re hoping to boost your credit score with good credit utilization. 

Charge card fees

Charge cards levy serious fees and penalties if you fail to pay off your balance at the end of the billing cycle. These fees will negatively impact your credit and are much more serious than late or overage fees for credit cards. 

Billing cycles

The majority of charge cards use a monthly billing cycle, though there are 60 and 90 day options for custom agreements with charge card issuers. 

Example

phone displaying divvy budgets on screen behind a physical divvy card

Divvy’s Smart Card is linked directly to budgets (which can’t be exceeded) and creates automatic expense reports. You get access to rewards, virtual cards, and flexible credit.

Best for

  • Large purchases
  • Access to backup credit when you need it
  • Businesses with heavy end-of-month cash flow

The verdict

Credit cards are the most common, and with good reason. They’re more accessible and flexible than prepaid or charge options. However, charge cards and prepaid cards can meet very specific needs for individuals or small businesses. We recommend starting with your unique business spending needs, then choosing the option that provides you the most freedom and greatest rewards.

Divvy’s business charge cards are different—and better. We have built-in budgets, automatic expense reports, and rewards YOU choose. Not to mention it’s free. Sign up now.

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