- Personal Finance
Credit Cards vs. Charge Cards
What is the difference between a credit card and a charge card?
This is a question I heard all the time when I worked for a certain credit card company. A credit card is a card that allows you to purchase items, you have a limit to your credit, and you have the option of making monthly, minimum payments. A charge card allows you to make purchases, you have no limit, and you are required to pay your bill in full each month.
Many people think charge cards are odd. These are customers that are looking to buy something that they can pay off over time. Credit cards are better suited for their needs. This customer can also take advantage of receiving points for a rewards program that many cards offer. In some cases, you can even receive a cash rebate at the end of the year.
With credit cards, you do need to make sure you’re making your minimum payments in a timely manner. With the advent of the internet, it’s very easy to set up direct billing through your bank account. With the bank I go to, I can just log onto their site, give the information on where to send the payment. Then, once each month, I just need to click the amount I want to send and, hit send. It’s all very simple and, gives people an easy way to make payments in a timely manner.
Credit cards also come with APR. This is the annual percentage rate. When you first receive a credit card, you may very well be offered some type of promotional APR. It’s a good idea to shop around and look for the lowest rates. An example of this would be an APR of 0% for the first 3-6 months. Afterward, the promotional period, your APR will change to something else. This could be quite variable. You will want to know what this rate will change to.
Many of these variable rates are based on your credit. Just because, you received a flier in the mail telling you that you could receive a promotional rate, doesn’t mean you will get that rate in the end. The application has to be filled out and, the credit check must be run. There is no other way to determine if you qualify. Many people can become hesitant about a credit check being run on them. They believe it will knock some points off their score. This is true. It does lower a few points. If you know you have bad credit or, poor credit, it will probably be best for you to not bother applying for anything.
Many credit cards have a grace period. You should find out what this is. Sometimes it’s a 10 day grace period, where if you pay your bill, in full, you will not be charged any finance charges.
A charge card is a great option for someone who makes lots of purchases, doesn’t like to carry cash, and wants to make sure everything they spend is paid off in full at the end of the month. This is great for keeping a full record of where all your money goes during a month’s time. It is ideal for someone who is also interested in earning rewards for whenever they spend. Another great feature is you have no limit to the amount that you can charge. You don’t have to ever be embarrassed about making a purchase and discovering you have maxed out your credit card.
Instead of APR, the charge card will have an annual fee. The fee is how the company makes their money and can be as low as $69 to high as $2,500 or more per year. The more you pay in an annual fee, the more exclusive features you will receive. With the benefits that you get from these cards, your fee definitely pays itself off. You just have to decide what features you are actually going to take advantage of, not what sounds good.
An example of this would be, you may be able to easily afford the $2,500 dollar fee but, if you're not playing on making any international flights, or taking advantage of concierge services, ect. it would be pretty pointless. Or, the opposite could be true. You may not want to spend too much on an annual fee but, the benefits offered, you will be taking advantage of anyway, so it will save you money in the long run if you pay up front with the annual fee.
With some of these higher level cards, you can actually earn 2 points for every dollar spent on certain purchases, like travel spending, thereby helping you earn rewards much faster than if you were to go with a lower level card. However, if you don't travel much, there's no point in getting that card. Again, decide what type of spender you are and, get the card that is going to help you, not the other way around. Companies want your business and that is why they have taken the time to design cards to suit various types of customers. Take full advantage of that.
Figuring that you spend money anyway each month, you might as well put those expenses on a charge card and, for every dollar you spend, you will earn a point you can later redeem for gifts. Now, instead of just spending money and getting nothing in return, you can with a charge card.
Like credit cards, charge cards come with things like purchase protection. Be sure to read up and ask questions on all the latest features that come with your credit cards and charge cards. You’d be absolutely surprised at what amazing things they offer. Big spenders can receive express service at airports and even concierge services. Also, you may be able to get various discounts at high end shopping stores, limousine service, and free airline tickets.
Now, there are some restrictions that do apply. Most of them aren’t too bad. Again, you’ll want to read through or, have an agent explain all of the restrictions. You can also just go to their website and read for yourself.
Bottom line, it will depend on what type of features you are looking for in a card. Both types of cards are excellent for different things. Many people actually have both a credit card and a charge card. Big purchases, emergencies, those can go on your credit card and, everyday expenses go on your charge card. Either way, you really do come out on top when you purchase with plastic. You get rewards, protection, and peace of mind.