Most people think that the phrases “charge card” and “credit card” are interchangeable; that they refer to the same thing. The truth is that they’re not. So let’s step back, look at the differences, and see which one is best for you.

A charge card is basically just a means of obtaining a very short term loan (usually a one month loan) for a purchase. The card issuer agrees to make you these loans at your discretion. When you pay back this loan before the end of the term, you never pay any interest on it, but if you can’t pay for it, there’s usually a pretty stiff penalty: 5% (or so) of your total outstanding balance, plus possible revocation of the charge card. In exchange for this service, you are sometimes charged an annual fee, but a few charge cards charge no such fee. Most American Express cards are actually charge cards, not credit cards.

On the other hand, a credit card does not have to be paid off in full at the end of each month. These cards can carry a balance forward, but the credit card issuer charges you interest on that forward balance. Also, there are no late fees if you pay the minimum payment each month, and such cards almost never charge an annual fee.

Which one is better for me? Charge cards tend to be targeted more towards financially stable travelers, as most charge cards tend to offer a lot of individual consumer protection, particularly when traveling. They also tend to have rewards programs that benefit people who make lots of purchases but pay them off regularly. They’re also better for controlling temptation to “charge” things you can’t afford, because they have to be paid off at the end of the month. In general, my experience has shown that charge card companies keep a pretty tight leash on the card users, but they treat “good” users quite well, while credit cards tend to give you more than enough rope to hang yourself.

As a general rule, you shouldn’t use either one unless you’re financially stable and can keep the balance under control. Then, if you don’t use a card too much, a credit card is better because you’re not dinged with fees, but if you use it as a primary purchasing vehicle, a charge card might be better as it offers more consumer protection. The rewards programs are largely comparable with a slight nod to charge cards.