Understanding the Differences Between Charge Cards and Credit Cards
A charge card and a credit card may seem similar at first glance, but there are some key differences between the two that you should be aware of.
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First, let's define each type of card:
A charge card is a type of payment card that requires the cardholder to pay their balance in full at the end of each billing period. Charge cards do not have a pre-set spending limit, but the card issuer may limit the amount you can charge based on your creditworthiness and other factors. Charge cards often come with more generous rewards programs than credit cards, but they may also have annual fees.
A credit card is a type of payment card that allows the cardholder to borrow money from the card issuer up to a certain limit. The cardholder is required to make a minimum payment each month, but they have the option to carry a balance from month to month and accrue interest on the unpaid balance. Credit cards often have lower rewards programs than charge cards and may also have annual fees.
Now, let's compare charge cards and credit cards in more detail:
- Payment: As mentioned, charge cards require the cardholder to pay the full balance at the end of each billing period, while credit cards allow the cardholder to carry a balance from month to month and accrue interest.
- Spending limit: Charge cards do not have a pre-set spending limit, while credit cards have a limit based on the cardholder's creditworthiness and other factors.
- Rewards: Charge cards often have more generous rewards programs than credit cards, but they may also have annual fees. Credit cards may have lower rewards programs and may also have annual fees.
- Interest: Charge cards do not accrue interest on unpaid balances, while credit cards do.
In summary, the main difference between charge cards and credit cards is the way they handle unpaid balances. Charge cards do not have a spending limit and do not accrue interest, but they require the cardholder to pay the full balance at the end of each billing period. Credit cards have a spending limit and accrue interest on unpaid balances, but they allow the cardholder to carry a balance from month to month.