Choosing whether to use a credit card or a charge card can be a very confusing topic. Since the words credit card and charge card are often used interchangeably, many people don’t actually know what the difference is between the two. A recent article on the Equifax blog, “Charge Cards vs. Credit Cards: What’s the Difference?” discusses in depth the pros and cons of both choices.
It is important to note that not everyone will qualify for a charge card. Generally, one must have a very good or excellent credit score (between 735 and 850) to qualify for a charge card. This is not always the case for a traditional credit card.
If you are debating on a charge card or credit card but don’t fully understand the difference, here are the biggest differences between the two:
- Spending limit: Traditional credit cards have a credit limit which determines how much a user is able to charge. Credit limits for users differ based on lender policies. Some credit card issuers will use a customer’s credit score and/or borrowing history to determine the user’s credit limit. Charge cards do not have a credit limit and can be used for large purchases.
- Payments: With a traditional credit card, you have the choice to pay the total amount due or make a minimum payment and carry the debt to next month’s bill. If you choose to use a charge card, the total amount must be paid in full at the end of the billing cycle.
- Interest vs. Late fee: Interest fees can rack up if a credit card user cannot pay the total amount due and carries debt into the next pay period. Since a charge card must be paid in full, there are no interest charges, although there may be a late fee for not paying the card balance, which is usually around $35.
- Rewards: Charge cards offer rewards that surpass traditional credit card points or airline miles. These rewards may include travel insurance, points tradable for merchandise or cash, hotel room upgrades or premium seating at event venues.
- Annual fees: A charge card typically has an annual fee that ranges based on your card type and status.
To learn more about how credit cards and charge cards differ, read the full article on the Equifax Finance Blog.