Wondering what the difference is between a charge card and a credit card? A charge card looks and operates as a credit card but there are some slight differences. First of all a charge card, by definition, is a type of credit card that does not charge any interest. Credit cards, by nature, charge interest on every purchase made and on unpaid balances at the end of the month. A charge card requires that the card holder pay the full balance of the card every month upon receiving a bill. Note that some accounts may send bills out on a periodic basis and not by the month.
Which Card is Riskier?
Because a charge card account is considered less of a risk, the credit card will usually have a much higher spending limit. Some banks actually allow unlimited spending. Charge card accounts do still have costs associated with the account, such as monthly charges, annual charges or setup fees. These accounts do not make money for the bank on interest; therefore they make their money on recurring fees and directly from merchants.
If a cardholder charges a purchase and doesn’t pay off the balance in full then penalty payments are charged onto the account and these can be pricey. Examples of charge card accounts include traditional American Express cards and Diner’s Club cards. American Express does offer credit cards in the form of the American Express Blue card.
In some cases, account holders may find charge cards more advantageous than traditional credit cards. Traditional credit cards are notorious for their huge interest rates. They also tend to promote impulse buying. This is contrary to charge cards, which can help to keep finances in check since the balance has to be paid every month. This is sometimes called fiscal restraint.
Benefits and Drawbacks to Consider
It is true that credit cards have greater flexibility than charge cards. However, card holders see this as secondary to some greater benefits. For example, charge cards have higher credit limits. That means, in theory, you can charge thousands of dollars a month with no worry provided you were capable of paying it in full later on. This can be a significant advantage for business owners and travelers. Having to worry about a credit or debit card with daily limits on cash withdrawal or purchasing amount can be frustrating.
Some charge cards also have attractive rewards program benefits. Some of these benefits may include double points, better reward merchant partners, free airline tickets, hotel upgrades and free memberships in various travel programs. Some charge card accounts provide insurance coverage. Some cardholders have remarked that charge cards have more comprehensive expense reports than credit cards, and this allows for easier tracking. If you have ever discovered a mysterious item on your card for a high amount and only read an abbreviated and unfamiliar name, then you can certainly understand this advantage!
Lastly, there is a certain prestige when it comes to using a charge card over a credit card. Not only is a charge card proof of favorable credit (since you pay the balance in full every month) but it also carries a certain amount of prestige. It suggests that you have a higher credit level, as well as business authenticity.
Which Card is Better for You?
The big question is, what is better for you—a credit card or a charge card? This depends upon your personal needs. Credit cards have limitations but also carry over balanced with no penalties besides regular interest. Most of the big name credit card companies offer credit card products, such as VISA, MasterCard, Discover and even American Express, which also has a charge card product.
Remember when deciding between charge cards and credit cards that you are not working directly with the credit card company. You are being issued a card by a bank. In some cases, charge cards may be associated with an individual retail store or a chain retailer. Try and determine if you could benefit most from a business account or a home account. Charge cards are generally friendlier towards business accounts. On the other hand, if you want to keep an open account for emergencies then a credit card account is more practical. What if you charge a few hundred dollars because of an automotive or medical emergency and can’t pay it back within a month? You may be charged excessive penalties if you have a charge card account.
What might help you is to use our card chaser tool on the web and compare several different companies that are offering credit, debit, or charge cards. This tool can help you compare interest rates, contract details and final interest rate quotes. This data will help you make an informed decision. Why not use our free credit card chaser tool right now before signing up for that all-important card? Get started comparing credit cards now!
