Do you want to know what is the difference between a charge card and a credit card? If you think that a charge card and a credit card are similar, then you are wrong. Although both cards work similarly, few distinguish that separate a charge card and a credit card.
A charge card is not new terminology, but due to not being used so much these days, we don’t know the potential of a charge card. We people are familiar with credit cards, which is why most people use credit cards instead of charge cards.
A charge card is similar to a credit card in physical, but some key feature makes a charge card unique from a credit card. Here, we will cover the topics of charge cards, including what is a charge card and its working mechanism, what is the difference between a charge card and a credit card, and the advantages of a charge card.
What is a Charge card?
A charge card is a card that requires payment in full when the statement is issued. It does not have a preset limit as credit cards do. Your purchase gets approved based on spending and payment history. With a charge card, you have to pay your bill amount. If not, then you have to pay interest on that amount.
On a credit card for bill payment, they offer a minimum amount which you can pay to avoid late fees or extra charges, but here, on a charge card, there is no option for minimum amount payment. you have to pay the full amount of your bill. If you fail to pay the total amount, you have to pay interest about three percent of your bill.
Suppose you have spent $2000. If you fail to pay the total amount, the interest will be $60, at a three percent interest rate. A charge card doesn’t have a preset limit like a credit card, but there are certain conditions of a charge card when it comes to limit.
How does a charge card work?
A charge card and a credit card work the same when shopping or inserting your card to make a transaction. when paying the bill on a charge card, you have to pay the total amount of your entire bill. This will be in your daily routine if you use a charge card regularly.
As we discussed, you have to pay the total amount of your charge card. Failure to pay off a large balance can be a big mistake. You will face a late fee if you pay after the due date. Paying post-due date charges around three percent. if you swiped your charge card for $5,000.00. fail to pay the total amount will charge around $150.00 as a three percent interest rate.
Often, most people carry credit cards along with their charge cards. There are many advantages to carrying both cards. To get financial stability and manage your money, both cards can help you.
How does a charge card affect your credit score?
A credit score is one thing people should maintain or try to increase because it can benefit the future. The transactions of a credit card and a charge card are directly reported to the credit bureau, Equifax, Experian, and TransUnion.
Paying full payment of your charge card regularly can boost your credit score. Charge card counts certain factors that make up yours, including payment history and depth of credit history. If you properly use a charge card and pay off your balance in full each month, then it will be a good habit for a great credit score.
Charge cards are not revolving accounts with rolling balances, and they don’t have any credit limits. if you pay your bill in full, it will push your credit score. At the same time, utilizing and managing a charge card is an important habit to increase your credit score.
What issuers offer charge cards?
Nowadays, there are few users of charge cards compared to credit cards. Most financial institutes phased out charge cards and focused on credit cards.
A charge card has its benefits. Initially, they provide some offers on shopping with which you can earn a reward as well. The charge card offers many discounts, like online shopping discounts, store shopping discounts, some welcome bonuses, and many more.
Advantages of charge card
- It does not have a pre-set limit as credit cards do. It gives benefits to the businessman. They can spend according to their needs.
- It is a digital tool that helps with account management.
- It helps to build a good credit score. It can be used further for car loans, personal loans, and mortgages.
- There is a great chance of earning reward points towards shopping and eating out.
What is the difference between a charge card and a credit card?
Both cards look the same physically, but some significant differences make both cards unique.
- A credit card has a pre-set limit for the transaction, while a charge card doesn’t have any specific limit, a bonus point with a charge card.
- We can pay a minimum on credit cards, but here, on a charge card, you have to pay the total amount of your bill. Otherwise, you will face interest charges.
- On a charge card, you have to pay the total balance of your spending each month, while with a credit card, you can pay the minimum amount provided by your card issuer in case you don’t have money.
- A charge card may not impact your credit score, but if you fail to pay your bill, it will directly hit your credit score.
- a charge card has less acceptance as compared to a credit card. most merchants and malls accept credit cards.
The bottom line
A charge card has its benefits. If you can pay full payment of your entire bill amount with the charge card, then go with it. Otherwise, a credit card is a good option for you. It provides a minimum amount to pay.
