Charge Card vs. Credit Card

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CreditCardGuru
 
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Charge Card vs. Credit Card

Postby CreditCardGuru » Tue Jan 13, 2015 9:52 am

Before deciding whether to apply for a new credit card or charge card, it's very important to understand what the differences are and which might better fit your financial situation. The payment terms and credit score requirements are different. Here's why...

Are they the same thing?
The answer is...no. A lot of people use the terms interchangeably, as if they were synonyms. However, these are very different financial products, not just in a branding sense like comparing between Visa and MasterCard.

Here's how they are different...
To begin with, what is a charge card? And, is a charge card better for you versus a credit card?

Both allow you to make purchases on credit:

  • In the case of a credit card, you can spread the payments out over months or even years. All you need to do is make the minimum payment each month. Obviously though, you will incur interest charges if you don't pay your bill in full each month during the grace period.
  • By definition, with a charge card, the outstanding balance has to be paid in full every month. If the payment is not made after you get your monthly bill, then charging privileges get suspended and you will be unable to use it until you pay. Additionally, a penalty (up to 3% or even higher) may be charged on your outstanding balance... that may not seem high, but keep in mind that on an annualized basis, that is a steep price to pay.
Which charge cards are the most popular?
Here in the US the only major company that issues charge cards for consumers is American Express. On a much smaller scale, Diner's Club (owned by Discover) issues charge cards, but they are primarily on the corporate rather than consumer side. AmEx also issue credit cards, but here are their charge cards...

AmEx Gold Premier Card
Premier Rewards Gold Card from American Express
When it comes to choosing between a charge card vs credit card, many people opt for the "PRG" because of all the benefits you get with it. There are dozens, from roadside assistance to getting extended warranty coverage on eligible purchases. Too many to list here! And the rewards and bonus offer is hard to beat.
AmEx Platinum
American Express Platinum
At $450 per year, this card is definitely not cheap. It's only appropriate for travelers who will be using the benefits which include airport lounge access, free hotel upgrades and perks over 700 properties, concierge service, no foreign transaction fees, and several dozen other perks.

AmEx Green
American Express Green
This level of charge card is below the Platinum and Gold.
  • Rewards: 1 point per dollar on eligible purchase
  • Benefits: You don't get much with this one, is basic, no-frills, yet still costs a lot of money. For that reason I do not recommend it.


How do the credit limits compare?
Most credit cards have a preset limit. For example, if your credit limit is $5,000 that is the maximum amount you can owe at any given time.

Charge cards, on the other hand, almost always have "no preset limit." Does that mean you can charge unlimited amounts and buy a couple Lamborghinis? Ha! Unfortunately not.

What it means is that during any given month you can spend as much as you want, assuming it's reasonable for your spending patterns. So in theory, if you normally did spend a whopping few hundred thousand per month, then you probably would be able to charge a couple cars to the card. But for the average Joe or Jane, the maximum amount they can spend will probably be comparable to the limits seen on their credit cards.

Since the entire outstanding amount is due when the monthly bill is issued, it is the user’s responsibility to only spend what they're capable of paying back.

Weighing the pros and cons
So why should you choose a credit card vs charge card or vice-versa? Here are the pros and cons you need to take into account...

Charge Cards

Advantages?
  • Since you don't have the opportunity to rake up debt, you never accrue any interest charges.
  • Just go through the benefits offered by the American Express charge cards versus their credit cards and you will see that they go above and beyond.
  • You might be able to qualify with a slightly lower credit score since they are somewhat less risky for the creditor (because you can't use them to rake up long-term debt).
  • Most have no preset credit limits that dynamically adjust to your credit line needs.
Disadvantages?
  • Because they won't be making money by charging you interest, there will be an annual fee.
  • You can't stretch out payments over time (which may be considered an advantage, depending on how you view it).
Credit Cards

Advantages?
  • Obviously there's a much greater selection, since almost all cards on the market are credit.
  • A majority charge no annual fee.
Disadvantages?
  • If you don't have the self-discipline to control you spending and pay your balances in full each month, credit cards can potentially be a dangerous way to amass a significant amount of debt!
Want to compare charge cards?


Editorial Disclosure: The editorial content on this page is not provided by any bank, credit card issuer, airline or hotel chain, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author’s alone, not those of the bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.


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