When it comes to paying with plastic, not all cards are made the same. While debit cards, or “check cards” use money in your checking account, charge cards and credit cards let you spend today, and pay it back later.
Both charge cards and credit cards can offer rewards and protection for everyday spending – but does one have an advantage over the other? It all depends on what you value, and what makes the most sense for your lifestyle. Here’s everything you know about charge cards and credit cards, and which ones are the best choice for your needs.
How Are Charge Cards and Credit Cards Similar?
On the surface, it may seem like charge cards and credit cards are effectively the same thing. Both products have a lot of similarities, which is where the confusion begins.
Both charge cards and credit cards defer the payment date for consumers. That is: cardholders can make purchases today, and pay the amount due in cash at a later date (usually within 60 days).
In addition, charge cards and credit cards offer more consumer protections than debit cards. While check cards act like electronic cash, both charge cards and credit cards offer fraud protection: if somebody steals your card number and makes purchases, you may not be responsible for the charges. Some charge cards and credit cards may also offer extended warranties as well, in the event some of your items break on their own before their time.
Beyond the basic benefits, charge cards and credit cards are as different as night and day. The question then becomes: does the ability to pay over time outweigh extended card benefits?
Charge Cards: Big Benefits, But Must Be Paid Monthly
Charge cards are often advertised with their incredible benefits up front, and not necessarily the fine print. These cards – often offered by American Express and Diner’s Club – will give cardholders a full suite of benefits which often come with an annual fee. However, between hotel elite status, flexible points that can be transferred to airline and hotel programs, and other exclusive offers with brand partners, it can be relatively easy to recover the cost of the card.
However, charge cards must be paid off every month. Whatever you spend on the card during the statement period must be paid completely within the next month. If you are thinking about getting a charge card, be sure to take a close look at your budget, to make sure you don’t get caught up spending beyond your means.
Because charge cards are targeted at a high-affluence audience, they often come with higher income and credit score requirements. In order to qualify, you may need to prove you have the income – and the good credit – to get approved for this kind of card.
Credit Cards: Points, Benefits, And Paid Over Time
While charge cards are usually targeted towards high spenders who want only the best benefits, credit cards come in many different shapes and sizes. There are secured and student credit cards for those with a limited credit history, low-interest credit cards for those who want the flexibility to spend over time, and rewards credit cards for those who are looking for points and miles with every purchase.
The biggest advantage of credit cards come in the ability to pay over time. Consumers can think of a credit card as a liquid loan: cardholders have a credit limit, from which they can draw from through spending. In exchange, they can pay off that balance over a period of time, and not just in the next month. For the liberty of paying off that credit card balance on an extended window, the card issuer will charge interest on what’s held on the card. This interest rate can be as low as 8%, or as high as 20% or more.
Like charge cards, credit cards can also offer benefits to the cardholders. They are usually limited to one brand, or generic rewards like cash back, and can come with an annual fee. Before you decide to apply for any card, be sure to understand all the benefits to make sure you can recover the value from any fees charged for keeping the card open.
Charge Cards vs. Credit Cards: Which One is Right For Me?
At the end of the day, does one card offer any benefit over the other? While credit cards are universally available to all types of consumers, charge cards have a much narrower audience – with benefits to match.
For those who want everyday spending card, or can take advantage of all the travel and lifestyle benefits, charge cards can make a lot of sense. Because charge cards are designed to offer a wide variety of bonuses based on lifestyle factors, those who can afford to pay it off every month in order to get value in excess of any annual fees may be able to get more from it than a credit card.
On the other side, credit cards are more universally accessible, don’t necessarily have the high qualification requirements, and offer an easier path to get rewarded beyond any annual fees. With options and rewards for consumers of every shape and size, credit cards offer a strong overall option for every lifestyle.
Although they look and sound the same, charge cards and credit cards are two different products with different kinds of rewards. By knowing the difference and doing the analysis, you can determine which one will give you the best possible rewards for your spending.