“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.