Even though most people consider a charge card the same thing as a credit card, technically, there are differences. Charge cards and credit cards have different terms, interest rates, rewards, and requirements. So which one is best for you? Of course, the specifics will vary from offer to offer, but here are the basics.
Billing
The biggest difference between a charge card and a credit card is the billing process. For a credit card, you have a minimum payment that you have to make each month. The issuing company then charges interest on the remaining balance. A charge card, however, requires that you pay off the balance in full each month.
This “pay in full” requirement can be both an advantage and a disadvantage. It prevents a cycle of revolving debt, where you pay the minimum payment, but never really pay down the card. If you charge more than you can pay, though, you still have to find a way to pay it off or your credit will be hurt. Charge cards have strict terms!
Interest Rates and Fees
With traditional credit cards, a customer with great credit could qualify for a low APR or a customer with a bad credit score could qualify for the card, but have high interest rates. With a charge card, you must have good credit to be considered at all, but since you pay the balance in full every month, you don’t have to worry about an interest rate!
Charge cards can stick it to you with some of the fees, though. For example, most have high annual fees and all charge late fees if you don’t manage to pay the whole balance by the due date. Some charge cards have annual fees of $500 a year, or even higher, which is much higher than a credit card.
Rewards
Like most cards with a high annual fee, charge cards have great rewards. Charge cards typically get you incredibly fast point accumulation. The American Express Premier Rewards Gold Card, for example, gives you triple points on airfare and double points on gas and groceries for a relatively low annual fee of $175.
In addition to points or cash-back rewards, many charge cards include other perks, like roadside assistance, extended warranties, rental car insurance, extended return times, and travel insurance.
Charge cards and credit cards are both reported to credit score agencies, so it’s important to stay on top of them, no matter which option you go with! Both types of cards leave room for you to make mistakes, but with the charge card’s requirement to pay the balance in full, you may be less likely to end up with more debt than you can pay.
