Most people commonly consider charge cards to be similar to credit cards. However, according to financial experts, charge cards and credit cards are two different things. Common traits about these cards are that they look similar, assist you in buying goods on credit, and enable you to make purchases without using cash.
The main difference between these two cards is the ability to carry a balance from one month to another. With charge cards, you are expected to pay off the balance in full before the beginning of a new month. On the other hand, a credit card allows you to pay off your balance over time with some interest.
Differences Between a Charge Card and a Credit Card
Other than the ability to carry on balances, there are other significant differences between credit cards and charge cards. According to www.boostcredit101.com research, here are the differences between charge cards and credit cards.
Purchasing Goods and Services
When using credit cards, you will receive a bill every month that reflects a statement balance and a minimum due. The statement balance is the total amount you owe while the minimum due is a small percentage of what you owe. Paying the minimum due means that you will avoid being charged late fees and you can still use the card to make payments. Furthermore, the statement balance will be carried over to the next month.
A credit card is subject to APR (annual percentage rate), which is charged when you carry a balance from one month to the next. APR is similar to an interest rate.
Charge cards do not have an APR since you are expected to clear your balance before the beginning of a new month. If you fail to pay off the balance in time, you will have to pay a late fee.
Annual fees are payments made by cardholders to help charge card companies operate efficiently.
Charge cards have an annual fee since charge card companies don’t receive revenue from interest rates. With charge cards, you are expected to pay off your balance in full before a new month begins since the card has no interest rates.
Credit cards have no annual fee because credit card companies receive revenue from the interest rate included with the cards.
A credit cap or limit is the maximum balance you can have on a card at any possible time. Credit cards have a specific limit while charge cards have no spending limit.
Nonetheless, this doesn’t mean that you can spend an uncapped amount. Instead, charge cards have an unpublished maximum spending limit based on your spending habits.
These are the factors that considered before one is either given a credit or charge card. Financial institutions offer credit cards to any level of credit from bad to excellent. However, for one to be issued a charge card, you need to have an excellent credit history.