The difference between a regular credit card and a charge card is that while a credit card allows you to carry a balance between months, with a charge card you must pay what you owe in full by the end of each month.
It’s important to note that charge cards are actually a type of credit card – they are just unique ones. Charge cards also usually have no preset spending limits, which means that the cardholder’s credit limit will vary based on their financial status and spending habits.
A charge card works a lot like a regular credit card, but without the option of making a partial payment. In other words, the main difference is that cardholders typically must pay their entire statement balance each billing period with a charge card. For that reason, the minimum payment on a charge card is usually the same as the statement balance. That said, some charge card issuers such as American Express have started to allow cardholders to pay off certain purchases over time. This turns the card into a hybrid between a charge card and a regular credit card.... read full answer
Charge cards also have no pre-set spending limit. This doesn’t mean that you’ll have no credit limit at all. Instead, it means that your credit limit will change over time based on a number of factors, including how you use the card. You likely won’t know what your limit is until you’re notified by the card issuer that you’ve gotten close to or reached it, and the limit could easily be higher or lower the following month. This can negatively affect your credit score, too, depending on how the card issuer reports the card to the credit bureaus.
Key Things to Know About How Charge Cards Work
Cardholders usually must pay their statement balance in full each billing period.
There is no pre-set spending limit.
Charge cards report to credit bureaus and impact credit scores.
Besides these unique features, charge cards work much like regular credit cards. Cardholders borrow money from the card issuer to make purchases, and then they pay off their purchases at a later date. Charge cards typically offer rewards, too, and they are reported to the credit bureaus, like normal credit cards.
The main difference between a credit card and a charge card is that charge cards don’t allow you to carry a balance from one month to the next, while credit cards do. Both types of cards allow you to buy now and pay later, but charge cards require that payment to be for the full amount you owe at the end of the billing cycle. Traditional credit cards require you to pay just a portion of your balance by the due date each month to keep your account in good standing.... read full answer
It’s important to note that a charge card actually is a type of credit card – just a unique one. Charge cards and other credit cards are different in more ways, too.
Credit Cards vs Charge Cards: Main Differences
Amount Due: Charge cards require you to pay your bill in full each billing cycle, while credit cards only require a minimum payment (a portion of your entire balance) and revolve the rest of your balance to the next billing cycle. Unless the credit card offers an introductory 0% APR though, you’ll have to pay interest on the unpaid portion of the balance.
Credit/Spending Limit: Charge cards generally don’t have preset spending limits, while credit cards will assign a credit limit based on your creditworthiness.
Debt, Interest and Fees: Charge cards will not allow you to accrue debt as you’re required to pay off your balance every month. Not paying your balance in full by the due date will attract considerable late fees though. Credit cards will only attract late fees if the minimum payment is not made by the due date. However, credit cards will accrue interest on any unpaid balance, unless they offer an introductory 0% APR for a certain period of time.
Credit Score Impact: Credit utilization isn’t part of the scoring criteria for charge cards, as they have no preset spending limit. Credit utilization for credit cards, on the other hand, is recommended to be kept no higher than 30-40%.
Annual Fees: Charge cards tend to charge high annual fees, while credit cards make for a more diverse offering, covering the whole spectrum of credit, from bad and limited, to excellent credit.
Some hybrid cards do have some sort of short-term financing. For example, American Express has a feature called "Pay Over Time" on some of their cards. That lets you carry a balance between months on certain eligible charges, with interest, up to a limit. Not all cardholders are eligible and all charges that are not included in the Pay Over Time balance must be paid in full by the due date.
Now that you’re familiar with the fundamental differences between charge cards and credit cards, you can take a look at some of the best that both types have to offer.
Overall, credit cards tend to be better than their charge card counterparts for most people. Credit cards provide financing capabilities, for one thing, and some of them are much easier to obtain. Charge cards can be very attractive to a certain segment of the market, though – people with good or better credit who always pay in full and want premium rewards.
The main difference between an Amex credit card and an Amex charge card is that Amex charge cards generally don’t allow you to carry a balance from month to month. Instead, you must pay off purchases in full each month. Technically, though, a charge card is a type of credit card – just not one with a revolving line of credit.... read full answer
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