What is the difference between a charge card and a credit card?
In a nutshell: Charge card statement balances must be paid off in full monthly, while credit card monthly payments require a minimum percentage payment of the balance plus interest and fees.
Here are the top 5 differences between credit cards and charge cards.
| CHARGE CARD | CREDIT CARD | |
|---|---|---|
| 1 | Credit limit can change monthly | Credit limit is fixed |
| 2 | No interest charged | Interest charged on the unpaid balance |
| 3 | Full balance payment required monthly | Minimum payment required monthly |
| 4 | Very limited issuers | Many issuer options |
| 5 | Expensive annual fees | Low annual fee options available |
Charge Cards Explained
A charge card is an electronic payment card that allows you to obtain credit for one month for purchases without paying any interest on the money spent.
At the end of each monthly cycle, you must pay the full balance owed on the charge card to avoid hefty late payment fees.
Many charge cards are designed to offer the same points or rewards programs as a credit card and can be used like a credit card for purchases wherever the issuer is accepted.
Although there is theoretically ‘no pre-set spend limit’ with a charge card, it does not have unlimited spending capacity on the card each month.
Charge card issuers set a soft spending limit based on what they believe you can afford to repay each month.
To determine your charge card limit, the issuer considers your income, your FICO score, and your spending and payment history.
Who Offers the Best Charge Cards?
American Express is the only major issuer of charge cards in America.
- American Express® Gold Card
- The Platinum Card® from American Express
- The Business Platinum Card® from American Express
- The Plum Card® from American Express
Credit Cards Explained
Credit cards are electronic payment cards that allow users to make purchases on credit without having to repay the full amount spent each month.
Credit cards allow you to slowly pay back the amount you have spent over time while being charged an interest rate from the issuer for the credit service.
Like small personal loans, the best credit cards allow you to borrow money for a purchase which you will repay in the future.
You do not have to repay the full amount spent on a credit card monthly. Instead, you can pay a minimum amount which is generally a percentage of your statement balance.
Generally, the unpaid balance and additional balances will be charged at a predetermined APR amount.
>> Confused about the difference between an interest rate and an APR?
Credit cards allow you to use the company’s credit instead of your own money to purchase goods and services.
They charge you a fee for the use of their money.
You do not have to repay your credit card’s full balance each month but rather a minimum percentage and fees.
Many credit card companies offer points or rewards programs to incentivize using the card rather than a debit card. Perks may include travel points or discounts on a vast range of products to incentivize the usage of a specific credit card.
However, those perks come at a cost. Credit card companies make their money by charging you interest on the use of their credit.
There are some cheap credit cards, but it’s essential to shop around to ensure you are not paying high interest on your purchases.
Perhaps the best option for a credit card is to use it like a charge card and pay your balance off monthly.
If you do this, you won’t be charged any fees as there is no balance to be charged. You will also have the benefit of earning the points or miles associated with your card.
Charge Card vs Credit Card
There are some differences between charge cards vs credit cards. However, they are both electronic payment cards that offer a monthly credit system to users.
Charge cards are not widely available, and there are options to use a credit card like a charge card by paying off the statement balance in full monthly.
A charge card’s annual fees can be pricey. Credit cards have largely replaced them for good reason. If you manage your finances well and can pay your credit card payment in full monthly, having a credit card may be much more beneficial.
Many credit card options offer low or no annual fees and great point rewards.
💡 Note: It’s important to note that American Express is not accepted at as many retailers as other major credit card companies.
Who Can Get a Charge Card?
A charge card would be most beneficial for people who are on top of their finances and do not use credit that exceeds their monthly cash flow.
People who live within their means but want a credit card’s points or miles without any interest payments fit this demographic.
Who Can Get a Credit Card?
Most people in America have a credit card. They are good for online purchases, gaining points or miles, holidays, and emergencies.
Many people use their credit cards for all their purchases and services during the month. This allows them to accumulate points or miles and then pay down the balance at the end of the month.
The main risk with credit cards is that you can get caught in a debt cycle. This happens when you spend more than you make and cannot pay back the balance on your credit card.
Bottom line: Most consumers use credit cards and are moving away from charge cards.
If you can get a good credit card with low APRs with a credit limit you can manage well without getting into a debt cycle, then that would be the better option. Credit cards are accepted in more places and many offer good points or miles programs.
FAQs
What is better a charge card or credit card?
When it comes to revolving credit, credit cards provide more freedom, but there are drawbacks as well. Without the proper discipline, carrying a balance on a credit card might result in an unpleasant amount of debt. Charge cards, however, often require full payment each month.
What is the point of having a charge card?
A charge card is a type of payment card that is frequently used by businesses and occasionally by well-off people. In that you can use them to make purchases without having money instantly deducted from the corporate bank account, they are similar to credit cards.
What is the basic difference between credit card and charge card?
A charge card functions similarly to a credit card, however, it does not allow for partial payments. Your charge card bill must be paid in whole by the due date. There is no pre-set spending cap available with charge cards.
What are the disadvantages of charge cards?
There are many credit and debit cards available, but many of them have significant annual fees. There are often significantly fewer options than credit cards because there are fewer issuers who offer charge cards. Late payments can harm your credit history, just like they can with credit cards.
Are charge cards bad for credit score?
Charge cards lessen the chance of damaging your credit score because they don’t affect your credit usage rate, but you should still be aware of the fact that they still affect four of the five major components of your credit score.
Is Amex a charge card or credit card?
Since American Express issues both charge cards and conventional credit cards, Amex can be either a credit card or a charge card.
Does charge card build credit faster?
Absolutely, if you use charge cards properly. Major charge card issuers submit account data to one or more of the three major credit bureaus each month. Paying on time will improve your credit because the history of your charge card payments is recorded on your credit report just like that of a standard credit card.
Do charge cards increase credit?
Like regular credit cards, charge cards can help you establish credit and receive incentives, but you must pay the entire balance on your charge card each month to avoid penalties.
Are charge cards harder to get than credit cards?
Charge cards, which require monthly payments to be made in full, are typically more challenging to get accepted for. Nevertheless, certain credit cards—especially those with the best rewards and benefits—might also have challenging eligibility standards.
Sources
- MyFICOaccessed on July 13, 2022
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