Charge Card vs Credit Card: What’s the Difference?

Most people think that the terms “charge card” and “credit card” are interchangeable. However, that’s not actually the case. In the real world, charge cards and credit cards have both similarities and differences. Keep reading to learn more about charge cards and credit cards, how they work, and the advantages and disadvantages of each.

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    Charge Card vs Credit Card: What’s the Difference?

    While you swipe a charge card to make payment just like you would with traditional credit or debit card, what happens next is much different. By and large, a charge card works like a short-term loan (usually a one-month loan) for a purchase. The card issuer agrees to make you these loans at your discretion, but you’re expected to repay your balance in full when your statement closes. Because charge cards don’t expect you to carry a balance from month to month, you aren’t charged a standard interest rate – nor do you have a minimum monthly payment. Instead, most charge cards come with a hefty annual fee for their use. If you cannot pay your balance in full, charge cards will charge fees and interest until your loan is repaid, and they may even shut down your card.

    Credit cards, on the other hand, do 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. Since the card issuer charges interest when you carry a balance from month-to-month, they will let you make minimum payments on your debts for years. While some credit cards don’t charge an annual fee, other cards – and especially those with lucrative rewards programs – charge annual fees between $49 and $450.

    Figuring Out Which One Is Right for You

    Since charge cards weren’t created for individuals who want to carry a balance, they are mostly geared to people who are more financially stable. Charge cards are also popular among travel enthusiasts since they tend to offer a lot of travel-oriented consumer protections and rewards. Charge cards might also be a better option for people who want the benefits of credit cards without the possibility of getting into debt. Since charge cards ask you to pay your balance in full every month, it’s much harder to run up a balance that will haunt you for a lifetime.

    Credit cards offer more flexibility in terms of repayment, but they also make it easier to get into trouble. With a line of credit to abuse, many people spend far more than they can afford to repay and rack up credit card debt in the process. Credit cards do have lots of consumer protections along with valuable rewards, and those benefits tend to draw consumers in time and time again. There’s nothing wrong with using a credit card as long as you are able to avoid overspending.

    Credit Cards are Best For:

    • Consumers who want the option to carry a balance from month to month
    • People who want to make a large purchase and pay it off over time
    • People who have restraint when it comes to their spending

    Charge Cards are Best For:

    • People who don’t want the option to carry a balance
    • Individuals who have plenty of cash to pay their bills in full every month
    • Consumers who travel and want travel-related consumer protections and rewards

    So, credit card or charge card? Which one should you choose?

    Editorial Note: Compensation does not influence our recommendations. However, we may earn a commission on sales from the companies featured in this post. To view our disclosures, click here. Opinions expressed here are the author’s alone, and have not been reviewed, approved or otherwise endorsed by our advertisers. Reasonable efforts are made to present accurate info, however all information is presented without warranty. Consult our advertiser’s page for terms & conditions.

    Trent Hamm

    Founder & Columnist

    Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.