Charge cards and credit cards are both ways to pay for things without using cash. But they have different features and benefits that you should know before you choose one. In this article, we will explain what charge cards and credit cards are, how they work, and how to compare them.
What Is a Charge Card?
A charge card is a card that lets you spend as much as you want, as long as you pay your full balance every month. You don’t have a set limit on how much you can spend, but your card issuer may approve or decline your purchases based on your credit history, income, and payment habits. You don’t pay interest on a charge card, but you may have to pay an annual fee and a late fee if you miss a payment. A charge card can help you avoid debt and build credit, but it also requires discipline and budgeting.
What Is a Credit Card?
A credit card is a card that lets you borrow money from a lender and pay it back over time. You have a set limit on how much you can borrow, which is called your credit limit. You can pay your full balance every month or pay a minimum amount and carry the rest over to the next month. If you carry a balance, you have to pay interest on the money you borrowed. You may also have to pay an annual fee and other fees depending on your card. A credit card can give you flexibility and convenience, but it also comes with costs and risks.
How Do Charge Cards and Credit Cards Compare?
Charge cards and credit cards have some similarities and some differences. Here is a table that summarizes some of them: Open in browser
| Feature | Charge Card | Credit Card |
|---|---|---|
| Spending limit | No preset limit | Preset limit |
| Payment requirement | Full balance every month | Minimum payment every month |
| Interest rate | None | Varies by card |
| Annual fee | Usually yes | Depends on card |
| Late fee | Usually yes | Usually yes |
| Availability | Less common | More common |
How Do Charge Cards and Credit Cards Affect Your Credit?
Charge cards and credit cards can both affect your credit scores, but in different ways. One of the factors that affects your credit scores is your credit utilization ratio, which is how much of your available credit you are using. With credit cards, this ratio is calculated by dividing your total balance by your total credit limit. With charge cards, this ratio may not be calculated because they don’t have a preset limit. However, other factors that affect your credit scores, such as your payment history and length of credit history, are still relevant for both charge cards and credit cards.
How To Choose Between Charge Cards and Credit Cards?
The best choice between charge cards and credit cards depends on your personal preferences and financial goals. Here are some questions to ask yourself before you decide:
- How much do you spend every month?
- How much can you afford to pay every month?
- How do you manage your budget and cash flow?
- How important is flexibility and convenience for you?
- How do you feel about paying fees and interest?
- How do you want to build or improve your credit?
Based on your answers, you can compare the pros and cons of charge cards and credit cards and choose the one that suits you best.
Conclusion
Charge cards and credit cards are both useful ways to pay for things without cash, but they have different features and benefits that you should know before you choose one. Charge cards require you to pay your full balance every month, but they don’t have a preset spending limit or interest rate. Credit cards allow you to carry a balance and pay interest, but they have a preset spending limit and may offer rewards or perks. Both types of cards can affect your credit scores in different ways. The best choice depends on your personal preferences and financial goals.
