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American Express; Insider
- Charge cards allow you to make a purchase on credit, but they require payment in full every period.
- Most non-debit cards are credit cards, which provide flexibility to on when to pay your balance.
- If you pay off your balance in full every month, you won't pay any interest.
What Is a Charge Card?
A charge card requires you to pay off your full statement each month, with no option of carrying over your balance to the next billing cycle. Unlike credit cards, charge cards typically don't have a preset spending limit, providing greater flexibility in spending. However, failure to pay the full balance by the due date can result in hefty penalties or the suspension of charging privileges. Charge cards often come with annual fees, but can offer generous rewards programs and benefits tailored to frequent travelers or business owners.
What Is a Credit Card?
Credit cards allow you to borrow money up to a certain limit to make purchases, transfer balances, or take cash advances. Unlike charge cards, credit cards enable you to carry a balance from one month to the next, accruing interest on any unpaid amounts. Credit cards are versatile financial tools, and can help you build a credit history when used responsibly. They often come with various incentives, such as rewards points, cash back, and introductory 0% APR offers for new accounts.
Comparing Charge Cards and Credit Cards
Payment Flexibility and Requirements
While charge cards require the full repayment of the balance each month, credit cards offer the flexibility to make minimum payments over time, albeit with interest.
Impact on Credit Scores
When it comes to building credit with charge cards versus credit cards, both cards can influence your credit score, but the way they're reported to the credit bureaus differs, especially in terms of credit utilization.
Rewards and Benefits
Charge cards often target specific consumer segments with tailored rewards and benefits, whereas credit cards offer a wider range of rewards programs to suit a diverse array needs.
Fees and Interest Rates
Understanding the fee structure and interest rates is crucial; charge cards may have higher annual fees, but credit cards could accrue significant interest if balances are carried month to month.
Choosing Between a Charge Card and a Credit Card
Consider your financial habits, ability to pay off balances, and what you value most in a card. If you prefer to avoid interest and can commit to paying in full each month, a charge card might suit you. For those who value flexibility in payments and want to build credit gradually, a credit card could be the better choice. Evaluate the rewards, benefits, and costs associated with each to make an informed decision.
FAQs
Can I carry a balance on a charge card?
Generally, no. Charge cards require that you pay off your balance in full each billing cycle, with no option to carry over balances. However, some charge cards may offer pay over time features to some cardholders for certain large purchases.
Do charge cards have a credit limit?
Typically, charge cards do not have a predefined spending limit, though purchases are approved based on your credit profile, spending patterns, and financial resources.
How does using a credit card affect my credit score compared to a charge card?
Both can positively affect your credit score when used responsibly. However, credit cards directly impact your credit utilization ratio, a significant factor in credit scoring models.
Are charge cards easier to get approved for than credit cards?
Approval for a charge card generally requires a good to excellent credit score, similar to many credit cards. The decision often depends on your financial history and creditworthiness.
Do charge cards offer rewards similar to credit cards?
Yes, many charge cards offer credit card rewards programs, including travel benefits and points on purchases, which can be comparable to or even exceed those offered by credit cards.