Credit Card vs Charge Card: Pros and Cons of Each

We live in a world where it is common practice to use plastic cards instead of cash to pay for various items. Most people think that credit cards and charge cards are the same product however, they are not interchangeable. Studies have shown that over 50% of Millennials will use some type of card to purchase low costing items such as a pack of gum while people over 50 tend to still use cash for those smaller items. Regardless of an individual’s age, we love to use credit cards and charge cards but lack an understanding of the difference between the two. A charge card is a type of credit card but they are not the same thing.

In this article, we will describe some of the differences between credit cards and charge cards as well as the advantages and disadvantages of both.

Credit Card Advantages

1. Low Payments

One of the main benefits of a credit card is it allows you the convenience of paying off your debt over a period of time. Oftentimes people need to purchase large ticket items such as household appliances, a new furnace or air conditioner and they do not have the cash. Using a credit card has been a lifesaver for a lot of people.

2. Ability to Avoid Interest

Credit card companies charge interest for permitting you to carry a balance. Most people are not aware or forget that they have an opportunity to avoid interest payments. You can choose to pay your balance in full before the grace period ends and avoid the interest charges.

3. Variety

Unlike many other areas, there is not one credit card company that has a monopoly on the market. There is an exuberant amount of companies for you to choose from and you can compare interest rates, annual and other fees to see which ones work best for you.

4. Acquire Multiple Cards

Some people apply for and acquire multiple credit cards for many different reasons. They want to keep charges from monthly budget items separate from entertainment or they want to build their credit.

Credit Card Disadvantages

1. Credit Limitations

Credit cards normally come with a specific limit established for your card and this remains the same unless they give you an increase. In most cases you are penalized if you exceed this limit and charged an over-the-limit fee. Many companies may also increase your interest rate for going over the limit. Be sure to read the fine print!

2. Late Fees

Credit card companies will charge you late fee if you do not pay at least the minimum balance by the due date. They cannot charge you more than the amount specified by law and usually you must miss two payments with a 6-month period to incur a late fee.

3. Annual Fee

Many credit card companies assess an annual fee while there are some that do not so be sure to shop around for a no or low-cost annual fee.

4. High Interest Rates

Buyer beware of the high interest rates charged by some of these credit card companies. One of the biggest marketing strategies they use to lure the customer in is to offer an extremely low interest rate for the first 6-12 months and then a significant increase.

Charge Card Advantages

1. No Interest Payments

A charge card does not have any interest payments. Since this type of card is paid in full every month at the end of the billing cycle, there is no overage to pay interest on.

2. Helps With Budget

A charge card helps you stay within your monthly budget because you know it needs to be paid in full every month. This is unlike a credit card where we sometimes live above our means with plastic money and feel like we can pay it whenever.

3. No Hard Preset Spending Limit

It is a huge advantage to have a charge card that has no preset spending limit. When you use a credit card for large dollar purchases, you run the risk of using all your available credit and maybe exceeding the limit.

4. Perks and Rewards

Charge cards often come with a variety of rewards and perks such as discounts on flights and hotels for traveling. They offer a host of discounts on

Charge Card Disadvantages

1. High Annual Fees

Charge cards usually come with very high annual fees. Some companies charge in the hundreds annually. Perhaps you are paying upfront for some of those perks and rewards.

2. High Late Fees

You are not allowed to carry a charge card balance beyond the grace period. If you do this then be prepared to pay a hefty late fee. You can be charged a late fee that is a percentage of the balance or a flat fee. Be sure to review aal of the card terms so you are not caught by surprise.

3. Easy to Overspend

Not having a spending limit on a charge card may get you into trouble because it makes it easy to overspend. This can cause problems when you are unable to payoff your balance at the end of the month.

4. Approval

Typically you need excellent credit to get approved for a charge card. Some companies require a 690 or above credit score in order to get approved.

Differences between credit cards and charge cards 

• Most people can obtain a credit card with poor credit but not a charge card.
• Credit cards have hard spending limits and charge card limits are uncapped.
• Credit cards charge interest and charge cards do not.
• Credit cards have lower annual fees and charge cards can be in the hundreds.
• Credit cards have a limit to the amount that can be charged for a late fee and charge cards can be a company named flat fee or a percentage of the balance.
• You pay at least a minimum balance monthly on credit cards but charge cards to be paid in full monthly.
• Charge cards are not as widely accepted as credit cards.

When applying for any type of card you should make sure you have a clear understanding of all charges involved, especially ones that could be considered “hidden charges.” Sometimes there is no annual fee but there is a start-up or processing fee. Some cards give you cashback for signing up or on purchases however, you must meet certain conditions.