What’s the difference between credit and charge cards?

Credit card or charge card? It isn’t a question that many consumers ask themselves, as the terms are often used interchangeably. There are quite significant differences, though, between credit and charge cards so it’s worth being aware of the options.

Credit cards:

  • Are a revolving line of personal credit that do not need to be paid in full every month.
  • Accrue interest on the outstanding balance each month. The interest may be backdated to the date of initial purchase.
  • Have a spending limit, set at a predetermined dollar value.
  • Only require you to make a minimum repayment; you never need to pay off the balance in full.
  • Use interest-free days, low-interest rates, rewards programs and other features to tailor the product to different types of spending profiles.

Charge cards:

  • Are a line of credit that must be paid off in full at the end of each billing cycle (typically between one to three months).
  • Charge no interest or additional service fees. They generally have an annual fee though and if your card is not paid off in full at the end of billing cycle, a late fee or other penalty may be charged.
  • Are typically issued either without spending limits or with very high limits, based on the holder’s normal spending habits.
  • Are better suited to high wealth individuals who can pay off larger debts at the end of the billing period.
  • Enable more comprehensive expense tracking. Or in other words, more detailed itemisation of spending.

So: Which one to choose?

The question as to whether you should choose a credit card or charge card will depend in part on both your spending habits and the level and reliability of your income. Here are a few questions to ask yourself:

  1. Do you always pay your card in full each month?

A charge card imposes fiscal restraint, as it must be paid off in full each month. If you are unsure whether this would be achievable, though, a charge card may not be for you.

  1. Could you deal with a higher credit limit?

Because you are paying off your debt each month, charge cards generally provide either a higher credit limit or waive the credit limit altogether. This can be a great advantage of course “

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