Charge Cards or Credit Cards – Which Of these is Best & How to Choose

Charge Cards or Credit Cards – Which Of these is Best & How to Choose.

Charge Cards or Credit Cards:  It’s easy to think that “charge card” is just another way to say “credit card,” but the two actually have very different meanings. In this article, we’ll discuss the major differences and characteristics of a charge card vs. credit card, and everything you need to know.

Charge Cards or Credit Cards - Which Of these is Best & How to Choose.

What is Charge Cards or Credit Cards

  • Charge cards generally require that you pay off the full amount you spend on the card each month.
  • Credit cards only require that you pay off some minimum amount of the total balance you owe each month. You can carry the rest over onto next month’s bill, although we recommend you always pay off your full statement balance every month to avoid paying expensive credit card interest charges.

Charge Cards

  • Require full payment every month
  • No hard spending limit
  • Usually high annual fees
  • No interest since must be paid in full
  • Not as widely accepted
  • Typically require very good credit

Credit Cards

  • Allow a minimum payment each month
  • Strict spending limit
  • Low or no annual fees
  • High-interest rates if you don’t pay in full
  • Accepted by most sellers
  • Some cards available to those with lower credit scores

Charge Card or Credit Card Highlights

Charge card Credit card
Has a preset spending limit No Yes
Requires you to pay the bill in full each month Generally yes No (but you must make at least the minimum payment and watch out for APR)
Has late payment fees Generally yes Generally yes
Has an annual fee Depends on the card, but generally yes Depends on the card, but generally yes
Has a wide selection of card issuers No Yes
Holds you responsible for unauthorized transactions Generally no Generally no

Charge card or credit card Features

Charge card or credit card Features

Annual Fees

A charge card will almost always feature an annual fee. There are many credit cards, on the other hand, that don’t require annual fees from cardholders. Many credit card companies make most of their money from interest fees. They charge these fees when people don’t pay in full and carry balances to the next billing cycle.

Since charge cards need to be paid in full each month, charge card companies can’t count on making revenue from interest fees on those cards. As a result, they charge annual fees to help cover operating expenses and earn a profit.

Credit Limits

Every Credit card has a set credit limit. Credit card companies tell you the maximum balance you can have on a card at one time. Charge cards generally have no preset spending limit.

That doesn’t mean you can spend an unlimited amount. Instead, it means the charge card has an unpublished maximum spending limit for the account based on your spending habits, income, and creditworthiness.

Credit Requirements

Banks offer credit cards for many levels of credit, from bad to excellent. There are credit cards for students who have no credit history established, and high-end travel rewards cards for cardholders with many years of responsible borrowing. The fees, credit limits, benefits, and rewards can vary widely from one card to the next depending on the credit history of the applicant.

Charge cards generally require excellent credit to qualify. Ideally, you should have a FICO Score above 760 before you apply, although you could be approved with lower scores as well. Since charge cards can allow for large purchases, charge card issuers want to make sure you have the track record and financial resources to pay off what you spend each month.

Using a Charge Card to Build Credit

While a charge card’s credit score impact is limited, practicing healthy financial habits with your charge card can still improve your score.  For instance, because it won’t count towards your credit utilization, using a charge card for a large purchase or heavy monthly spending that you’re able to pay off can be useful to avoid a hit on your creditworthiness.

Ultimately, your credit score is determined by how you handle your finances, not the card you carry. Before applying for any charge card or credit card, review your spending habits and do your own research into available options to ensure you find a good fit for your habits.

Conclusion

Conclusion

Charge cards are a great option for consumers with strong, established credit and the ability to pay off their spending in full every month. These cards offer some nice perks and a good incentive to avoid spending beyond your means. If you’re looking for a card with more flexibility, however, a credit card might be a better choice.

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