Charge card or Credit card: What is the difference?

Whenever we are looking for solutions to improve our financial status, we always take a close look at credit card, charge card and installment loans.

It is widely known that loans and credit lines are a wonderful way of solving monetary issues. Still, in some cases, it is not as simple as it sounds.

You might know the difference between a classic debit card and a credit card, but do you know what a charge card is? 

If your answer is no, or if you do know what they are, but you aren’t familiar with the details, worry not, we will show you all you need to know right here. 

Here, at Oxford Funding, we are fully compromised with you. That’s why we always want to deliver magnificent pieces of financial advice that you can follow to make your life better. After reading this blog post, you will know:

• What is a charge card?
• How do charge cards work?
• What’s the difference between a charge card and a credit card?

Charge cards are nothing but another type of electronic payment in addition to the ones we already know.

The thing is, charge cards have no interest. Sounds good, right? Well, the catch is that the cardholder needs to pay the statement balance in full at the end of each month.

Nowadays, charge cards are not as popular as they were before. In fact, not many issuers give charge cards these days. Still, they have an uncapped spending limit, which ends up being beneficial for the cardholder.

Nonetheless, the annual fee is usually higher than credit cards.

How do they work?

First of all, you can use charge cards in any place that accepts electronic payments. They have similar features to the standard credit cards you already know, but there are some differences we will mention ahead.

The main difference is the one mentioned above: the balance needs to be totally paid monthly, with no exceptions.

They are popular because they give excellent benefits and rewards with each purchase made with the card. 

Of course, charge cards still require a credit application in order to be approved. They are primarily approved for high-quality borrowers, so if your credit score isn’t that good, you probably won’t be eligible for a charge card.

The main thing that makes credit cards attractive is their amazing credit facility. This is a feature that can’t be found on charge cards, though. 

In charge cards, there’s no spending limit, and there are no interest rates. As you might know, when you make a purchase with a credit card, you need to pay the balance and the interest generated in the purchase.

Credit cards also allow users to claim a refund if something is wrong with a purchase. This isn’t the case with charge cards, but there’s something called a “chargeback scheme” where customers can claim a refund within 120 days of discovering the existence of a problem.

Besides, charge cards are aimed at people with high incomes and high spenders. There’s a minimum income requirement, which may also exist in credit cards but is not as high as in charge cards.

To summarize: credit cards are fantastic for most people because they give you the alternative to spread the final cost of your spending. A charge card doesn’t allow this: you will spend as much as you desire with no limit, but it must be paid monthly.

Charge cards advantages

Now that you know the main difference between these two types of cards, it’s time to comprehend the advantages of a charge card:

• • No spending limit: yes, you read that right – there’s virtually no spending limit! You can make a large purchase without putting your credit score in danger. Still, this doesn’t mean that you have unlimited spending allowed.
    The limits are set by your credit score, payment history, and credit record, but it’s way higher than in credit cards.

• • No interest: remember that you are required to pay every single month. Basically, if you do manage to pay, you won’t have debt or interest fees at all.
  • They can boost your credit score: charge cards are an amazing way to build a good credit score. Spend as much as you want, pay it when you must, and you’ll see your score rise!

Charge cards disadvantages

All that glitters is not gold. Charge cards also have some downsides, so let’s get into it:

• • Late fees: if you actually fail to make the monthly payment when you should, prepare yourself for a big late fee. Besides, this will definitely damage your credit score. Keep in mind that all card issuers report late payments to credit bureaus!
  • High annual fees: sometimes, the annual fee of a charge card can rise up to hundreds of dollars. Consider this before applying for one.

You need a high credit score: if you want to use a charge card, your score must be high. We are not talking about an average credit score – we mean a really high one, 690 or higher.

If you consider that your income is good enough and you can make all payments at the end of each month, then a charge card is not a bad idea at all.

After all, the aforementioned benefits are good for people with financial stability. Nonetheless, if you are looking to have more flexibility, then go for credit cards.

Needless to say, you can actually transform a credit card into a charge card if you manage to pay your balance in full each month – your credit limit won’t be that high, though.

So, to make things short: are you about to make a high volume of spending? Go for a charge card. 

Do you want to pay with more flexibility and don’t care about having a high credit limit? Go for a credit card. 

At the end of the day, it depends on you.