Credit Cards vs. Charge Cards

“Credit or debit?” is a question we often hear when we’re shopping. However, there was a time when the phrase was “Cash or charge?” And, at face value, there might not seem to be a difference between using credit and charging.

After all, both terms imply purchasing on credit.

However, when it comes to credit cards vs. charge cards there are some rather significant differences between the two.

Charge Card Upsides

Perhaps the most consequential difference is there are no pre-set spending limits with charge cards. You can go hog-wild buying everything in sight—up to a point—as long as you pay it off in full when the bill comes in.

Yes, charge cards require payment of the entire balance at the end of each billing period. But this means you’ll live debt-free with a charge card. Further, you’ll encounter no interest charges because you’re not carrying a balance from month-to-month.

All of this happens while your credit score steadily improves— as long as you use the card responsibly. Even better, most credit scoring models don’t consider charge cards when calculating your credit utilization rate. So having a charge card won’t count against your credit score.

Credit Cards Upsides

You don’t have to pay the entire balance in full each month (though you should to avoid interest charges). Late payment fees can be avoided by simply making the minimum payment and credit cards enjoy almost universal acceptance.

They can also be had with a lower credit score and you have a wider variety of issuers from which to choose. The resulting competition means a number of credit card issuers don’t charge annual fees.

By the way, should you ever find yourself in a situation in which you can’t afford to make the minimum payments on your credit cards, tapping a service like Freedom Debt Relief can help you settle debts so you can get your finances back on track.

Charge Card Downsides

While charge cards theoretically have no spending limits attached, the issuer can refuse to authorize purchases. This can happen if your prior use of the card, payment history, credit record or financial resources indicate you’re getting in over your head.

With no interest charges from which to derive income, charge card issuers must impose annual fees. An American Express Platinum card runs $550 annually as of January 2019. The Green American Express card is fee-free the first year and $95 per year afterwards.

If you find you can’t pay the entire balance one month, you’ll be hit with a $27 fee. It will go up to $38 the second month—or if you’re late again within six months of the first delinquency. Miss twice in a row, you’ll be expected to pay an additional 2.99 percent of the outstanding balance or $38—whichever is greater.

Charge cards are also not as universally offered as credit cards. American Express is the sole issuer in the United States. As you might expect, they require a very strong credit score to qualify. You will be denied “membership” if your score is 689 or lower.

Another downside is charge cards aren’t as readily accepted as credit cards. One reason for this is the higher fees American Express charges merchants, which can be as high as 3.5 percent of the transaction plus a $.05 transaction fee.

Credit Card Downsides

You don’t have to pay the entire balance in full each month, so substantial interest charges can mount if you’re not careful. This means it’s easier to get into financial trouble with a credit card.

Credit card usage can also count against you when your credit score is being evaluated. Additionally, credit cards have pre-established spending limits and requesting an increase can result in fees charged against you.

Speaking of fees, issuers wield a host of them consequent to a variety of actions. These can include cash advances, exceeding your credit limit, requesting a limit increase, transferring balances, paying late or using your card in a foreign country.

As you can see, when it comes to credit cards vs. charge cards, both have their pros and cons. The best choice for you will depend upon your income level, spending habits and financial goals.