Difference between a credit card and a charge card

Understand the fundamental difference and select the right option for your unique financial needs.
Difference between a credit card and a charge card
2 min read
29 July 2023

Credit cards and charge cards are two popular payment methods that offer flexibility and ease of use. However, they differ in some key aspects, making it essential to understand their unique features before choosing the right option for your financial needs.

What is a charge card?

A charge card is a type of payment card that allows you to make purchases without carrying cash. Unlike credit cards, charge cards do not have a pre-set spending limit. Instead, they require the cardholder to pay the full outstanding balance by the due date each month. Failure to pay the entire balance can lead to penalty fees and may impact the cardholder's credit score.

How charge cards work?

Charge cards provide short-term credit to the cardholder, allowing them to make purchases and pay the balance in full every month. Since there is no pre-set spending limit, the cardholder can spend as much as needed, but they must ensure to repay the entire amount by the due date to maintain a good credit standing and continue using the card.

Advantages of charge card

  1. No pre-set spending limit: Charge cards offer the flexibility of spending without a predetermined credit limit, allowing cardholders to make large purchases when needed.
  2. Builds responsible spending habits: By requiring full repayment each month, charge cards encourage responsible financial behaviour and discourage excessive debt accumulation.
  3. No interest charges: Since the balance must be paid in full each month, charge cards do not carry interest charges on unpaid balances.

Credit card vs charge card

  1. Spending limit: Credit cards have a pre-approved credit limit, which allows the cardholder to revolve a balance and pay it off over time. On the other hand, charge cards have no pre-set limit and require full payment monthly.
  2. Monthly repayment: Credit cards offer the flexibility to pay a minimum amount or a specific percentage of the outstanding balance, with the option to carry forward the remaining balance to the next month. In contrast, charge cards mandate the full repayment of the balance each billing cycle.
  3. Interest charges: Credit cards can carry high-interest rates on unpaid balances, making it crucial for cardholders to manage their debt efficiently. Charge cards do not incur interest charges as long as the balance is paid in full each month.

While both payment options offer convenience, their features differ significantly. The choice between the two depends on your spending habits, financial capacity, and credit management skills. Before opting for either, assess your financial goals and choose the one that aligns best with your needs and lifestyle.

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Frequently asked questions

What is better, a charge card or credit card?

The choice between a charge card and a credit card depends on your spending habits and financial discipline. If you prefer strict repayment terms and no credit limit, a charge card might be suitable. If you require the flexibility of revolving credit and making partial payments, a credit card may be more appropriate.

Why would anyone use a charge card?

A charge card can be advantageous for those who have the financial means to pay off their entire balance each month. It encourages responsible spending and helps avoid the accumulation of high-interest debt.

Is it easier to get a charge card or credit card?

In general, credit cards are easier to obtain than charge cards. Charge cards often have more stringent eligibility criteria due to the requirement of full monthly repayment.

Do charge cards have a limit?

Charge cards do not have a pre-set spending limit, allowing cardholders to spend as much as needed. However, they have a ‘shadow limit,’ which is an undisclosed limit based on the cardholder's spending and payment history.

What is the benefit of a charge card over a credit card?

The primary benefit of a charge card is the absence of a pre-set spending limit, providing greater flexibility for large purchases. Additionally, charge cards promote responsible financial habits as they require full repayment each month.

Who uses a charge card?

Charge cards are typically popular among frequent travelers, business executives, and individuals with substantial expenses.

What are the typical features and benefits of a charge card?

A charge card is a unique payment tool with no fixed spending cap, promoting disciplined spending by requiring complete monthly repayments. It offers short-term credit flexibility for substantial expenses and eliminates interest charges due to the full balance payment requirement.

Are there any spending limits associated with charge cards?

Charge cards often don’t have a pre-set spending limit. However, the spending capacity is not unlimited and depends on factors like your card usage, payment history, and financial resources.

What are the eligibility criteria for applying for a charge card?

The eligibility for a charge card typically includes a good credit history, sufficient income, and sometimes, a specific minimum age. The exact criteria can vary based on the card provider’s policies.

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