What's the difference between charge cards and credit cards?

Charge cards and credit cards are similar in some ways, and very different in others. Both are linked to banking accounts and allow individuals to make purchases without having to pay upfront. For those who don’t like to carry cash wherever they go, these are convenient alternatives. As with other choices you make in daily life, deciding whether to get a charge card or credit card is up to you. However, there are some key factors to take into consideration when weighing your options.

Credit Cards vs. Charge Cards

There are several notable differences between charge cards and credit cards. Both have pros and cons. Charge cards do not have a monthly limit on spending, and they do not have an associated interest rate. Many do come with annual fees, but offer additional perks as a means of compensation. Before applying for a charge card, be aware that they have little margin for error when it comes to late payments. Unlike credit cards, all monthly bills for charge cards must be paid on time and in full; no minimum payment is accepted. Additionally, they typically require a minimum income level. Since these cards are used by a smaller percentage of the general population than credit cards, there are fewer choices available.

There are benefits and drawbacks of credit cards, as well. First, most have flexible monthly payment options, and allow you to make a minimum monthly payment or paying in full. Secondly, most card issuers do not charge an annual fee. Many credit cards come with low introductory rates, and you will find a large variety of cards to choose from when shopping around.

Prepaid Credit Cards

For an even safer option in terms of payment leniency and spending flexibility, consider prepaid credit cards. They can be used like credit cards to make purchases, but they are not linked to bank accounts. They function like debit cards, and draw money from whatever funding source you prefer to link them to. They are more readily available to people with no credit history or a low credit score, and are quite versatile. Prepaid cards can often be used to withdraw money from ATMs, pay bills online, and authorize payment to creditors. Lastly, reloading these cards is quite simple.

Credit Cards and Credit Score

If you own a credit card, chances are that you use it for most large purchases that you make. When it comes to making payments, credit cards are quick and easy. With a single swipe and signature, you’re done. While making transactions in this manner can be quite liberating, remember that you with each swipe of the card, you are responsible for having the funds to pay off that amount. The way that you use your credit card can have a significant impact on your credit score, and before opening a credit card account, you should review your credit report. If you’re diligent about making your monthly payments on time and in full, your credit score will reflect that behavior, and can boost your overall credit rating. To keep track of your credit rating, you should monitor your credit on a regular basis – preferably daily, or at least once each week. Understanding your credit score and rating also involves knowing the answer to the question: how do credit cards work?

Deciding whether to use a credit card or charge card is ultimately your decision. Both come with benefits and drawbacks that you’ll want to take into consideration. Your personal payment history should also factor into the equation. For those who can (and do) consistently pay bills on time and in full each month, a charge card may be the most beneficial. However, if you prefer to make minimum monthly payments, a regular or prepaid credit card will probably be the best option.

Author Bio:

Amy Johnson is an active finance blogger who is fond of sharing interesting finance management tips to encourage people to manage their personal finances. More specifically, she advocates that people should check credit reports and scores regularly.