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Credit Card vs Charge Card

By: Emily Totura
Aug 9, 2021 • 6 min read

Credit Card vs. Charge Card – What’s the difference?

If you don’t have a credit or charge card, chances are, you probably know somebody who does. This is because there are many different types of cards to choose from, and they offer a variety of advantages compared to just using plain old cash. From security to perks, in this article, we’ll share with you everything you need to know about credit and charge cards, as well as how to open an account.

What’s the difference between a credit and a charge card?

Before you rush to your local bank, it’s important to understand the difference between the two. While they might look alike, there are some key differences that you should be aware of. If you don’t know the difference, you’re not alone. Many people use the two interchangeably.

white and blue magnetic card

Charge cards don’t have a spending limit

When you open up a credit card, you’ll be given a set credit limit—this is essentially how much you can spend a month. Once you reach your credit limit, your card will most likely be declined for future purchases until you pay off the balance. It’s important to note that other payments factor into your credit scores, such as if you have any student loans or a mortgage. You might notice that some issuers will allow you to spend more than your credit limit.

However, this usually results in you having to pay an over-limit fee each time you buy something. With credit cards, you do have the option to increase your credit line over time. For example, if you’re a college student, you won’t have as much credit available compared to someone else who is older. This is because you haven’t proved that you can make payments on time yet. As you start to pay your credit card bills, car payments, rent, and other bills on time, your credit will increase.

On the other hand, charge cards don’t typically have a preset spending limit. This doesn’t mean that the issuer won’t watch how much you spend with your card, though. Based on payment history, income, debt, and other factors, your purchasing power can change— similar to credit cards.

You’re required to pay a charge card’s full balance each month

If you use a charge card, you must pay the total balance that’s due every month. For some, this can be beneficial, as it forces you to monitor your spending so that you aren’t spending more than you have. When it comes to credit cards, you have the option to make a minimum payment. This is essentially a small percentage of the balance on the credit card. If you choose to pay only the minimum, the rest will “revolve” to the next month. This can help you to manage your expenses better, but you’ll probably need to pay interest on what you did not pay that was due.

Credit card interest, also known as the annual percentage rate (APR), is something to consider if you plan on carrying balances from month to month. An APR is an annual rate that is charged for borrowing. So, if each month you’re carrying a balance, these fees can add up over time and cost you a lot of money.

You can avoid late payment fees by making a minimum payment

When it comes time to pay your charge card bill, if you don’t pay it in full, there’s a good chance that you’re going to end up getting a late payment fee. Credit card issuers also charge late fees sometimes, but you have the option to avoid this by paying the minimum on time. Because of the CARD Act, there is a limit on late payment fees for credit cards. In 2021, the limit is $29 the first time, and all following late fees are $40.

Late payments can affect you in other ways as well. Many charge card issuers will close accounts or pause privileges.

credit card vs charge card

Charge cards aren’t as available as credit cards

As time progresses, charge cards are becoming rarer. American Express is the only major issuer where you can apply for a charge card. However, their requirements are very strict, so there’s a chance you might not get approved. Another option is to get a charge card for gas purchases.

The acceptance rates are different

American Express states that their credit cards are accepted as a payment option at 99% of all vendors that accept credit cards. However, their charge cards aren’t as widely accepted when it comes to using them internationally. Some come with foreign transaction fees making it more expensive than using a credit card that allows travel. Additionally, gas station charge cards are sometimes only accepted at co-branded fueling places or a gas station within your issuer’s network.

How do they each work?

Charge cards and credit cards work the same way in a physical sense. You just need to swipe or insert the card! When it comes to paying your bill each month, it’s a little different. As we said, you need to pay the entire balance each month in full. If you don’t, you’ll incur a late fee—usually about 3%.

With credit cards, you have a line of credit that you can use to make purchases or transfers. It’s considered a loan that you’ll need to pay back in the future.

When it comes time to pay your bill, you’ll receive a statement—either electronically or in the mail. Here, you can see a list of all of your transactions, as well as what you owe to the bank. You can do it the old-fashioned way and pay your bill by mailing a check. Or, you can pay it through your bank’s online portal. It doesn’t matter which one you choose, just make sure you pay it on time!

Do charge cards affect my credit score the same way that credit cards do?

Charge cards don’t have a credit limit, and because of this, it doesn’t affect your credit utilization rate. What’s that? It’s the percentage of your available credit that you’re using. This doesn’t mean it won’t affect your credit, though.  Compared to credit cards, charge cards influence your payment history more. It can also have an impact on the average age of your accounts, the number of new inquires, and the credit mix.

If you decide to open a charge card, make sure to make your payments on time. Like credit cards, your issuer will send this information to the credit bureau, which is then shown in your credit report. Once you open your charge card, make sure to keep it open. Closed accounts can alter the amount of time you’ve had credit.

Additionally, when opening most accounts, you could see a drop in your score by a few points. Since charge cards are considered to be revolving credit, if you decide to close the card, your credit mix might be affected negatively. This is especially true for those that don’t have any other credit card accounts. It’s always a good idea to have a mix of accounts, like loans, to show that you can manage different kinds of credit.

credit card vs charge card

What are the overall pros and cons?

Charge cards aren’t as popular as credit cards. However, they do have a lot of benefits that make them worth considering. First, there’s more motivation to pay off the full balance when you use a charge card. With this, it’s also less likely that you’ll be carrying debt each month. If you use them the way they’re meant to be used, you’ll be given some flexibility without carrying that debt.

Yet, there still are some downsides to charge cards. It’s less flexible when you’re trying to carry over a balance. For example, if you wanted to pay off a purchase through installments, it’s more expensive to carry over the balance. You also need to be careful about your purchases and stick to a budget. Because you need to pay off the total balance, it’s crucial that you be mindful and don’t lose track of how much you’re spending.

Credit cards offer convenience, credit building, rewards programs and are sometimes inexpensive. However, it can be easy to overspend if your credit limit is more than what you have, and if you miss any payments, your credit score will suffer.

What about debit cards?

Debit cards are a lot different than credit and charge cards. It takes money directly from your checking account when you use it to purchase something. Sometimes they’re referred to as “check cards” or “bank cards.” Many people prefer debit cards because it takes away the need to carry around cash. However, it also makes it easier to conveniently get money from an ATM. Debit cards will usually have a daily purchase limit which means that you might not be able to make large purchases. Instead of signing receipts, you’ll be required to enter a PIN.

Most debit cards don’t have any extra fees like an annual membership or cash-advance charges. This doesn’t mean that you won’t encounter any. If you choose to withdraw cash from an ATM that isn’t your bank, you’ll likely be charged an ATM transaction fee. You also might find yourself in a situation where you spent more than you had. In this case, you could get insufficient funds charged—similar to when a paper check is bounced. And if you signed up for overdraft protection, you’ll get those overdraft fees too.

The main advantages of debit cards are that it allows shoppers to make their purchases in “cash.” What makes this better than cash is that you’ll be able to see every transaction made with your card on the monthly statement. They’re also easier to obtain if you don’t have a good credit score. Yet, there are still disadvantages. Some people are reluctant because if your card is stolen, it could take some time to get your money back. This can cause problems if you need to make payments, such as rent. They also don’t usually offer rewards or any other perks that you typically see with credit and charge cards. So, while they’re easier and safer, debit cards have a lot more limitations than credit and charge cards.

Which one should I get?

No option is necessarily more popular than others because it depends on your financial situation. You might have just graduated from college, so your credit score is low. Because of this, a debit card might be the best option for you. Maybe you travel a lot for work, so getting a travel rewards credit card is the right choice for you. Regardless, do some research and talk to your local bank. They have expert bankers there that can guide you in the right direction. Whichever card you choose—or don’t choose—always make sure that you have a budget!

Where to open an account

If you’re looking to open a charge card, as we said, American Express is the only major credit card issuer that offers charge cards. You can still get a charge card from another provider that isn’t as well-known. However, these can be risky. To learn more, compare each of American Express’ charge card options.

If you’re a student in college, you have the option to apply for a student credit card from a major credit card issuer. Keep in mind, though, that some student credit cards have high-interest rates and annual fees—you don’t necessarily want this when opening up your first credit card. If you already have a savings account with a bank, consider opening up a credit card with them. If you have an existing relationship with a bank, it can make it easier to get approved for a credit card.

When you’re ready, you can apply online, but if you go to a local branch, you’ll be working directly with a representative. This can be especially helpful if they have some authority to push your approval. Retail and department stores usually have positive approval odds, but they can have high interest rates making it expensive to carry over balances each month. Another issue is that these cards aren’t usually versatile.

credit card vs charge card

If you’re just starting…

The best credit cards for college students:

  • Bank of Americaâ Travel Rewards credit card for Students: This credit card offers a welcome bonus of 25,000 points, and there’s no annual fee. To get this credit card, you’ll need a good credit score (700-749). So, why is it a good option for students? If you’re planning on studying abroad, you won’t have any foreign transaction fees while still earning rewards points. Note that it isn’t necessarily a good card for balance transfers as the APR only applies to purchases made.
  • Discover itâ Student Cash Back: When you open this card, you’ll receive a cashback match with no annual fee. This card is great for students, especially those who haven’t started building their credit yet, to gain more experience with managing their credit. This card is especially great for students because you can receive a “good grades” statement for up to 5 years if you maintain at least a 3.0 GPA.

The best credit cards to build credit

  • Secured Mastercardâ from Capital One: There are no annual or hidden fees, and it’s easy to apply for this card online—you’ll know if you’re approved in seconds. You can put down a refundable security deposit, starting at $49, to get an initial credit line of $200. You’re able to earn this back as you use your card responsibly—AKA making your payments on time. Another reason why this card is a great option for new cardholders is that you’re automatically considered to get a higher credit line within the first 6 months without any other deposits.
  • First PREMIERâ Bank Mastercardâ Credit Card: If you have fair or bad credit, this card issuer will let you choose which account management options are the best for you. This will allow you to slowly build your credit score over time. You can fill out an application online and find out in 60 seconds if you’ve been approved.

The bottom line is that while you don’t need to get rid of cash completely, but opening a credit or charge card offers many benefits compared to those random dollar bills sitting at the bottom of your bag. Building your credit allows for you to make bigger purchases, and your money is a lot safer when you use one of these cards. Do some research, and reach out to your local bank if you have any questions. Now, get shopping!

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