Charge Card vs. Credit Card: What’s the Difference?

While charge cards credit cards may physically look the same (you may even confuse the two while seeing them spelled out at a glance), these twin cards have two unique personalities. 

Both serve as alternatives to cash. However, the way that you’ll ultimately end up paying the bill varies greatly between the two. As you are likely familiar with, the ubiquitous credit card allows you to pay off purchases over time. With Charge cards, however, you’re required to make monthly payments. 

While credit cards may seem like the obvious choice at a glance, charge cards have some unique advantages when stacked up against credit cards, which will make them ideal for certain shoppers. 

In this article, we are going to cover everything you need to know about both charge cards and credit cards so that you can make an informed decision between the two to meet your spending needs. 

What is a Charge Card?

Charge cards largely function much like credit cards. They are little slates of plastic handed over to vendors in order to make transactions. However, while credit cards have preset spending limits, this is not the case with charge cards. This is ideal for spenders whose expenses widely vary from month to month. However, it should be noted that if you’re planning on making a particularly expensive purchase, you should contact your provider to make sure the purchase will be approved. 

The other key characteristic, as mentioned above, is that charge cards have to be paid off in their entirety each month. This shouldn’t necessarily be considered a bad thing, however. Using a charge card can help shoppers be more responsible with their purchases since they know they’ll have to pay it off in full relatively soon. Furthermore, paying off the card each month means you won’t be paying interest fees. 

Not too shabby. 

What is a Credit Card?

Millions of people, most likely including yourself, use credit cards every day and are vaguely familiar with how they work. Even so, let’s take a moment to define the key characteristics of a credit card in order to contrast them with charge cards.

Credit cards give their users a line of credit to make purchases that can be paid back later and over a long period of time. While credit card users are required to make minimum payments each month, they are not required to pay off the entire balance, as is the case with charge cards. Furthermore, you’ll collect interest fees until your balance is fully paid off.

This means that a 100 dollar pair of shoes you bought with your credit card can cost you a lot more if you take a long time paying it off or make late payments. You can develop crippling debt with credit cards, whereas a charge card (if used correctly) will acquire no debt. Even so, credit cards are extremely popular, with over 190 million Americans owning one.

Benefits of Charge Cards

One of the biggest benefits of charge cards is that they encourage users to pay off their debt. Charge cards will charge both interest and a late payment fee if you miss a payment. While this sounds like an obvious drawback, credit cards will charge you with interest even when used as intended. If you make your proper payments on a charge card, you’ll never have to worry about collecting interest or debt. 

Another benefit that charge cards carry is the lack of a hard spending limit. This doesn’t mean that you have unlimited spending. However, it simply means that your limit can fluctuate from month to month. 

Charge card users can check their available limit by checking online, utilizing a mobile app, or calling the card provider. It’s also worth noting that charge cards come with their fair share of built-in rewards and perks for things like travel. 

Negative of Charge Cards

Charge cards, of course, come with a number of drawbacks that are worth considering. The first of which is that, unlike credit cards, charge cards don’t allow you to carry a balance over a series of months. As a result, you’ll need to be ready to pay off all of your transactions in full by the end of the month, which can be a challenge for those big expenses. 

Another area where charge cards fall short is variety. Unlike credit cards, of which there are hundreds to choose, charge cards are becoming increasingly scarce. With limited options, you may have trouble finding a card that works for your specific needs. While only slightly, charge cards are also accepted at fewer places than credit cards and will also pack hefty fees if you are planning to use them internationally. 

While you may be saving money on interest fees, charge cards come with their own set of fees. For instance, charge cards charge users annual fees of up to 500 dollars. On the other hand, credit cards often have much less expensive annual fees, if any annual fee at all. With charge cards, late fees can also be significantly more expensive than credit cards. 

Charge Cards and Credit Score

Though they may not have credit in the name, your credit score plays an important role in how the card functions. For starters, charge cards will require users to have a good or excellent credit score, which translates to 690 or higher. 

This is because there is a higher risk involved since charge card users are required to make full payments each month. These credit score requirements can make charge cards inaccessible to a large number of users. Certain credit cards, on the other hand, will approve users with scores that are far lower. 

One positive element of charge cards in regards to credit is their lack of effect on your credit utilization. Credit utilization is a huge part of determining your credit score, making up roughly 30%. Frequently spending close to your monthly preset limits can take a large toll on your score over time. 

Because charge cards don’t have any preset limits, there’s no way for them to be included in your credit utilization, meaning that no matter how much you spend each month, your credit score won’t be affected. Missed payments, however, will be reflected in your credit score. 

How To Get A Charge Card

In recent years, charge cards have largely become a thing of the past. However, American Express still provides several options. These available options are:

  • American Express® Green Card
  • American Express® Gold Card
  • The Platinum Card® from American Express

As mentioned above, your credit score will have to be up to snuff in order to qualify for any of these cards. The flexible limits that you receive are also determined by your credit history, annual income, and transaction history. 

Choosing the right Amex card will depend largely on your spending habits. The green card is for those who are looking for a minimalist charge card with a low annual fee of a little over 100$. For users looking to spend over $1000 each month with the charge card, the Gold Card may be the best option, offering better protection as well as better rewards, helping the card pay for itself. 

The platinum card comes with a steep $450 annual fee but comes with some outstanding perks for travelers. On a side note, certain retailers, most notably gas stations, also offer charge cards that can be used at their respective stores

Credit Card vs. Charge Card: What To Choose

For most users, a good old-fashioned credit card will be the best choice. Not only are they more friendly to those with less than satisfactory credit scores, but they also allow users to pay off large purchases over a spread out period of time instead of all at once. 

For some, a charge card’s inability to do either of these things may be an instant deal-breaker. Besides, by paying off your credit card payments in full every month, you can essentially use your credit card as a charge card.

However, for those who require flexible spending limits, charge cards are the obvious choice. Charge cards are also ideal for those who have a record of being financially responsible and are looking for a card that will hold them accountable for their smart spending. Charge cards aren’t inherently better than credit cards and vice versa. Equipped with the right information, it’s up to you to decide which makes the most sense for your spending habits.

Finding the Right Card With Seek Capital

With so many options to choose from, finding the right credit card or personal loan that fits your specific needs can be a huge headache. Luckily, Seek Capital has just the cure. With Seek Capital, you can compare credit cards side by side as well as get all the info you need about interest rates, rewards, and how to apply, all in one place. 

Whether you’re looking to open a new credit card for your startup business, or you’re simply looking to buy that slightly overpriced pair of jeans you saw online the other day, Seek Capital will help you find a financial situation that works for you. 

 

Sources:

US Consumer Debt Crisis | debt.org

Featured Cards | American Express

Difference Between Credit Cards and Charge Cards | Nerd Wallet

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