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What is the Difference Between a Credit Card and a Charge Card?

“Are they the same?” asked my husband, as he leaned over my shoulder.

“Ah ha,” I replied, “no! More reason to write about it, then.”

This is personal finance 101, so some of you may already know about it. But if you’ve wondered what the difference is, or if you’re trying to find out more before you decide which kind to have, then read on.

What Make a Charge Card Different

A charge card acts like a credit card in many ways. You can use it to pay for the same things as a credit card. You don’t have to pay it off immediately, just like a credit card, and the money doesn’t come right out of your bank account like it does when you use a debit card. You may hear advertising that charge cards don’t have credit limits, but they still have de-facto limits (you can’t just charge $16k).

But there’s a big difference between a charge card and a credit card. You have to pay your charge card off at the end of the month. Every month. Every billing cycle, to be specific.

You can’t carry a balance on a charge card without getting big fees. I’m not talking about interest. If you carry a balance on a charge card, you get hit with fees and risk losing the account.

Is a Charge Card Better or Worse than a Credit Card?

As a consumer, you most of the things you can do with a charge card are the same things you can do with a debit card. Advantages of a charge card are reward points (if yours offers them) and the impact on your credit score. Charge cards may impact your credit score a little differently because they don’t have an official limit and % of available credit isn’t always reported as such, but as long as you use them right they should have a good effect.

The biggest drawback of a charge card is the annual fee that most of them charge. I don’t believe in using cards with annual fees because there are cards available without them. Even if you don’t carry a balance, the company should make their expenses back when you use the card and they take 3% of the purchase.

So, do you need a charge card?

A charge card can serve as a valuable tool if you’re good at paying bills on time, want to build a credit score, but are concerned about overspending. However, if you can’t find one without an annual fee, then you’re probably better off using a credit card for a few fixed expenses, paying it off every month, and using a debit card for everything else.

If you don’t have problems paying off your card every month anyway, then there’s no reason a charge card is better than a credit card, excepting rewards programs offered by particular cards.


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September 17, 2009 at 12:07 pm
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{ 5 comments… read them below or add one }

John Magee September 15, 2009 at 9:25 am

Great post analyzing the pros and cons of charge vs. credit. An alternative option, especially for those interested in avoiding debt, interest charges, and fees: try a debit card. Debit cards take money immediately from your bank account, so you never have to worry about running up a balance that you will have to pay off.

Debit cards typically don’t have rewards programs that are comparable to credit cards. But that is changing soon: I work at PerkStreet Financial, and we are launching the industry’s first free checking account with a debit card that pays rewards like a credit card – or even better.

J. Money September 15, 2009 at 8:03 pm

Hah! I like your husband – I had no idea what the difference was either to be honest with you. Not that I really thought about it much, does anyone still USE charge cards anymore? I’ve never heard of any of my friends or family using one. Interesting post!

GetDebit September 17, 2009 at 4:26 pm

One potential issue with using charge cards (like the American Express cards) is that you are subject to the whims of the underwriters… even after you’ve used the card for a while. Amex recently closed or significantly reduced the lines of many old time card holders. A business owner who loses the ability to purchase supplies, travel, etc. can be put in quite a bind by such a change in underwriting. So, we think its best to have BOTH a charge card and a credit card.
.-= GetDebit´s last blog ..Community Gift Card Programs Launched =-.

Dad September 20, 2009 at 9:56 pm

Ah, Charge cards. That goes back. I didn’t realize they still had them. My mother did all her department store shopping with them while I was in school. You could usually get one in a city that was authorized for all the department stores in that city but not in another city and not in another type of store (such as grocery store). Sounds like that last item has changed.

It some ways the modern debit card takes its place (except for the issue of rewards and advantage of cash back, I rarely pay ATM fees).

In the past, the charge cards were payment deferred to the end of the month managed by the store itself (probably hiring a bank or accounting firm to do the work although in store billing departments were quite common at the department store level). It was the successor to going to the local general store and because they knew you, you could ask them to put it on the bill (presumably until payday). With large cities and department stores this was unmanageable. The card (usually metal with embossed name and address and notches to enable at each store) was a point of reference that meant the clerk at the register didn’t need to know you or make any decision on allowing it. If your purchase were expensive, she would probably call the store’s billing department to authorize the charge.

I said that card was not usable in multiple cities. That was part of the notches in the card. Sometimes the system wouldn’t quite work as planned. My mother got a card in Philadelphia and used it at some stores there. She then went to a New York suburb for half a year and had no trouble. Finally we moved to the suburbs of Baltimore. It worked well for quite a while. Apparently most clerks made the notches fit. One day, an alert clerk noticed a discrepancy and my mother had to go to the financial department to be issued a new card good in Baltimore (and visit the billing department of the other three department stores to get it notched for them before she could use it). Since she had paid her bills ontime, it took only a few minutes at a service desk to get this accomplished in each store. The card had been notched in Baltimore for the department stores there but was fundamentally a Philadelphia card. It means that if you shopped at Gimbles in Philadelphia, you needed a separate physical plate for Gimbles in New York. However you could share the plate with Wannemakers in Philadelphia and the New York Gimbles card could be notched for Macys also.

It was a nice idea that worked well until travel became big. That’s where Diner’s card was an innovator and was useful a lot further away. Then came the Master Card and Visa card. Now you could have one card (or more if you chose) and shop anywhere that accepted it. They didn’t need to know you and you didn’t need to be local.

But just like store credit these old plates were pay at the end of the month and you could lose the card for not doing so.

As you can imagine, these charga-plates (as one system was known) were only for the financially ‘sound’ people and were a middle class and above feature. Credit cards open this area to those who would not have qualified usually with the expense of higher fees.

Roger September 21, 2009 at 6:16 pm

Not a bad explanation of the differences. I was aware that they weren’t the same thing, and even had a basic conceptual understanding of the differences, but it’s nice to see it spelled out.
.-= Roger´s last blog ..Scams, Schemes, and Scum: Advanced Fee Frauds =-.

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