Updated on 10.10.16

Personal Finance 101: Charge Cards and Credit Cards

Trent Hamm

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.

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The Difference Between Charge Cards and Credit Cards

Charge Cards

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.

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.

Figuring Out Which One Is Right for You

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.

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  1. Golbguru says:

    I am glad you pointed out this difference. I have dropped the word “charge cards” a couple of times in my friends circle and got a “huh!?” look on their faces :)

  2. deRuiter says:

    Credit cards, for the financially responsible, are a great institution. I’m a frequent flyer miles junkie, and take wonderful trips funded by the free miles. The secret to credit cards is to use them to buy ONLY what you would pay for in cash each month. Twice a month, on the 1st and the 15th, pay your credit card balances online. Choose airline credit cards, where the first year is free and they give you a bonuse of 15,000 to 25,000 miles. Come the 11th month, when the company wants to charge $60.-$95. for the second year, call customer service to see if the charge can be negated. If so, keep the card. If not, apply for another airline’s credit card for a year free, get the miles, and close the first one before the fee has to be paid. There are TONS of other strategies for getting miles free for doing everyday things which one would do anyway. Those free miles are there and the price of them is built into the price of services and goods for which you pay. Think of that free trip to India for $95. (you pay only the government’s taxes on the flight), the $50. trip to Europe, that $115. trip to New Zealand! Without my airline credit cards, I’d have to pay full fare, or not travel. A PERSON WITH GOOD SELF DISCIPLINE CAN USE CREDIT CARDS SAFELY, AND PROFIT FROM THEM. You have to be vigilant about the use of the credit cards. If gasoline is 5 cents a gallon cheaper for paying cash, ALWAYS pay cash, as the nickel is more valuable than the miles. If you have automatic bill pay, pay out of your credit card, not your checking account. For every dollar you have to pay anyway, you will get a free mile. Withdrawing the monthly bill money from the checking or savings account does not net you any bonus. Credit is a tool. Use it wisely and it is a grand servant. Use it foolishly and it is a harsh master.

  3. If hydrocarbon is 5 cents a gallon cheaper for remunerative cash, E’er pay payment, as the nickel is writer worthy than the miles. If you hit automatic program pay, pay out of your assign record, not your checking chronicle. For every symbol you mortal to pay anyway, you module get a available mile. Withdrawing the monthly saw money from the checking or fund record does not net you any bonus.

  4. Ada says:

    Great article! We are linking to this particularly great content on our
    website. Keep up the good writing.

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