Charge Card vs. Credit Card: The Differences

There are many distinct ways to pay in the modern economy today. Cash and paper money can still be used universally, but now many digital and cryptocurrency payment options are available in some places.

With all of these options, knowing where to begin and what payment options are the best way to maximize your spending power can be confusing. Two of the most prominent players in the world of payment options are charge cards and credit cards. Many people mistakenly believe that charges and credit cards are the same.

Keep reading for some of the differences and similarities between charge and credit cards to help you make more informed personal finance decisions.

What is a credit card?

First, we need to break down what a credit card is. Credit cards have been around since the 1900s.

A credit card is a payment card issued by a bank or other credit-issuing authority allowing you to spend on the card up to a specific limit on the credit, meaning you don’t use your own money to make the purchase yet. Credit cards often offer rewards systems such as cash back, points, or travel miles.

As your purchases rack up, so does your statement balance, the history of all your purchases, and the grand total.

You must pay off the minimum monthly payment, which will vary depending on your card. You can leave the rest to revolve and stay on your balance on credit. But be wary of leaving too much balance monthly, as any charges not paid off every month will accrue interest, often at a high clip.

It’s not uncommon for credit cards to charge interest rates as high as 25% or more, which can quickly add up and leave you in serious debt.

What is a charge card?

Now we can look at charge cards, which you might notice are similar to credit cards. Just like a credit card, a charge card is a payment card that allows you to make purchases on credit that you then pay off later.

There is no set credit limit on a charge card. Instead, the issuing authority can adjust your purchasing power based on your payment and credit history.

You still have a statement and a balance on your charge card, but you do not have the option to rotate your balance month-by-month. Instead, you must pay the entire balance on your charge card each month.

This can help prevent you from building up interest and making purchases on credit over periods longer than a month. Charge cards often also feature rewards programs like cashback rewards, but they may not be as lucrative as credit card rewards programs.

Similarities between charge cards and credit cards

Now that you understand the basics of both charge cards and credit cards, we can start comparing the two so you can determine what’s the best option for your needs. There is no right or wrong answer, only one that fits your financial plans.

Purchase on credit

The first and most significant similarity between charge cards and credit cards is that they allow you to make purchases on credit. This means you don’t have to have the funds in your bank account at the time of sale. You only need to fall within the available spending limit to make the purchase.

This lets you make purchases with money you won’t have until a future date as long as you promise to pay it all back.

Monthly payments

Additionally, both charge cards and credit cards typically operate on a monthly statement basis. This means that you are required to make payments on your balance every month, whether it be the minimum payment or your total balance.

Rewards programs

Credit cards and charge cards also typically feature some type of rewards system, though each card will feature different features and benefits. Cashback is a common benefit, while rewards points or travel miles are also a common form of reward system.

Annual fee and late payment fees

Both charge and credit cards typically have annual and late payment fees. These fees can range from a few dollars to a few hundred dollars per year.

There are also plenty of credit cards available without any annual fee, although they typically don’t offer the most robust rewards programs.

Differences between charge cards and credit cards

And now, a closer look at the ways that charge cards and credit cards differ. Understanding the key ways these two payment methods differ will be instrumental in deciding which card is the best choice for you.

Rolling balance

On a credit card, you can roll over your balance monthly, letting you pay off purchases over months or years.

On a charge card, however, you are expected to pay the entire balance in full every month. This lets you make purchases with money you will receive within the month, but you won’t be able to spread out your purchases over many months.

This point is essential, as it means you must treat your charge card in a way much more like a debit card than a credit card.

With a debit card, you must have the cash needed for the transaction in your account at the time of purchase. The money is automatically transferred from your account and sent to the seller’s bank account in a seamless transaction.

With a credit card, however, you can spread out the cost of a purchase over as many months as you wish. You will, however, have to pay interest on the remaining balance every month, which can be a leading contributor to household debt.

Availability

If you have been searching for charge card issuers recently, then you may have noticed that there are very few options out there. As for credit cards, on the other hand, there seems to be a never-ending supply of options perfectly tailored to any niche.

Once upon a time, charge cards were more popular, but today credit cards are the primary player.

If you are hoping to get a charge card, don’t despair. There are still options available to you.; it just won’t be the same kind of variety that you can expect from credit cards.

Impact on credit score

When you apply for a credit or charge card, you may notice changes to your credit score. When you have a hard credit inquiry (when a credit provider accesses your credit score to determine your creditworthiness), your credit score can be affected.

But beyond that, credit cards can continue to impact your score in ways that a charge card won’t. While both are credit accounts that can improve your credit, only your credit card will offer you benefits based on your credit utilization.

Credit utilization is a percentage of your balance compared to your credit limit, giving you an estimate of how much of your open credit lines you use. Lower credit utilization indicates that you can use credit without relying on it too heavily and can then increase your score.

Since charge cards don’t have credit limits, credit utilization is not always a factor. However, this depends on the card issuer, so be sure to ask for the details so you know where you stand.

Charge card vs. credit card: which one is right for me?

After all this information, you might feel even more confused than when you started. That’s okay; it’ll all make sense soon. Credit and charge cards are great payment options that allow you to make purchases on credit and grow your credit history.

Credit cards offer longer credit terms, better rewards, and firmer credit utilization, while charge cards require you to pay the balance every month and can prevent you from building up massive credit card debt. So which is the right card for you?

The truth is, there is no single right option. Charge cards and credit cards each have their place. Consider your situation and make your decision carefully.

Credit cards vs. charge cards: the wrap-up

Credit cards and charge cards are both great options to build your credit and make purchases. As long as you make a choice that aligns with your needs, you can rest assured you’ll have the right card.

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