What is the difference between a charge card and a credit card?

Credit cards and charge cards are two very different methods of payment, but they are often confused. Anyone looking into credit options will be faced with various choices that include but are not limited to these two cards. Below you will find information on both options and how they differ from one another.

Credit Cards

With a credit card, you can make payments in person and online provided you have credit available. Each card has a set limit that can only be increased if the card holder puts in a request and if they fulfill all of the necessary requirements.

Repayments need to be made on a monthly basis. The amount payable each month is calculated according to the total amount outstanding. Each month an additional fee will be added as per the agreed interest rate. Some credit cards offer grace periods where interest is not applied until a certain amount of time has passed. If you manage to pay off your card prior to this date, no interest will be accumulated.

Charge Cards

Charge cards do not offer any kind of roll-over credit facility. In other words, you cannot pay only a portion every month. Instead, what you spend, you need to pay in full. You also need to take care not to miss the due date!

On the plus side, because you pay your bill every month, there is no interest added to the amount due. So, you will only be paying the amount you spent. This can come in handy if you’re waiting for payday to arrive, but you are in urgent need of medication or household supplies, for example.

While credit cards have a set limit, charge cards do not. The amount that you can spend will depend on how you manage your card and your overall credit rating. With a satisfactory credit rating, you will have access to more and more credit as time goes by.

The annual fees for a charge card are drastically higher than those of a credit card. It is important to understand and take these fees into consideration before making your decision. In some cases, the annual fee on a charge card is high as a periodic payment but worthwhile when compared to interest rates of credit cards.

Other Differences and similarities

Both charge cards and credit cards can help improve your credit rating provided they are used responsibly. Payments made using a charge card will not have a negative effect on your credit score because there is no credit limit and because balances are not submitted as part of credit score calculation.

Depending on the card company you choose, rewards can be earned on both credit and charge cards. Travel discounts are one of the most common and popular reward systems in place at the moment. If you have one or more account with a particular bank or card provider, you might be able to negotiate the terms so that they are even more suitable for your needs.

Different cards exist for the sake of catering to different needs. Your specific financial situation and needs will determine which card is right for you. That said, most clients choose credit cards due to the roll-over balance feature. The fact that you are not obligated to pay the full amount all at once makes credit cards more flexible. Of course, if you have the means, you can pay your credit card off on a monthly basis much in the way you would a charge card. This is a great way of managing your credit, avoiding interest fees and late payment penalties.

Credit cards and charge cards cater for various needs. Some are strictly for gas, others are for buying groceries and, of course, there are credit cards that can be used to pay for just about anything. Use our Wallet Savvy tool for free to compare more than 150 cards and find the perfect credit card for you!