Charge cards vs. credit cards


Charge cards vs. credit cards

If you can’t decide between taking out a credit card or a charge card, it’s a good idea to clue yourself up first before you consider applying. The type of card you choose to apply for depends mainly on your spending habits.

Both charge cards and credit cards share a few similarities, however the fundamentals of how both types of card work are different. Let’s take a look at the ways in which they are similar, as well as the key differences.

The similarities

Both charge cards and credit cards give you a way of paying for goods and services online and in store. You’ll be sent a monthly statement detailing your spending and (if you have a balance outstanding) you’ll have to make a monthly repayment within a certain set timescale.

Most credit cards carry either the VISA or MasterCard branding and you can use them wherever you see those acceptance marks. Leading players in the charge card market include Diners Club and American Express (which also issues credit cards) and, again, you can use your cards wherever you see those accepted.

Most charge cards have an annual fee. By contrast, credit cards tend not to charge an annual fee (although some do).

Both charge cards and credit cards have certain requirements you will have to meet when you apply for the card in order to be accepted. Although there is a wide variety of credit cards on the market with varying acceptance criteria, there are many that are only available to those with excellent credit histories. Those tend to offer the most attractive perks like 0% interest on purchases or air miles. Similarly, some charge cards have income requirements that mean you must earn over a certain amount per year to qualify – those too may also offer some enticing rewards.

The differences

The key difference between charge cards and credit cards is that with a charge card, you must repay the balance in full each month. No interest is charged between the day you make the transaction and the day you pay the balance (which can be up to 56 days).

By contrast, if you pay using a credit card, if you wish to do so you can spread the cost of your purchases over a number of months, so long as you make at least the minimum repayment each month. Generally speaking, you’ll be charged interest on what you borrow.

Alongside this, you can only spend up to the pre-agreed credit limit on a credit card. Going over the limit can be costly, and can cancel any perks you benefit from and may also risk your card provider cancelling your credit card altogether. On the other hand, a charge card has no spending cap at all, which can be risky if you spend beyond your means.

When you apply for a credit card, you may not be offered the advertised interest rate. This is because the interest rate you qualify for is calculated by taking your credit history into consideration. As there is no credit facility on a charge card, you won’t be charged any interest - your balance must be paid off each month.

Credit cards also offer you an extra form of consumer protection that isn’t available on charge cards. If what you purchase on your credit card doesn’t show up, if it does but is faulty or damaged, or if the retailer goes out of business, you should be entitled to a refund. This protection comes from Section 75 of the Consumer Credit Act.

Finally, where charge cards are often reserved for those with an income above a certain amount (often those with higher incomes), there are many types of credit cards suited to a wider range of personal circumstances. For example, the Ocean credit card (representative APR 34.9%) is available to people who may have struggled with credit in the past.


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Which one is best?

This really just depends on what you need the card for. For instance, if you’re looking to spread the cost of your purchases over a number of months, a credit card is the better option. On the other hand, if you pay your balance in full each month, you may find a charge card suits you better.

With a charge card, you must be confident you’ll be able to repay what you spend each month, as not doing so can spell costly charges and interest, and your card may be cancelled. However, with a credit card you must remember to make at least the minimum repayment each month – although it’s best to pay more than this as it means you’ll pay less in interest.