Charge Cards vs. Credit Cards
It is often a misconception that charge cards and credit cards are both the same, but they are two decidedly different types of card. The main difference is that a credit card holder has the option of paying the balance of the card off in full every month or they can choose to make monthly payments and incur interest charges on the balance of the card.
What are the Differences?
Charge cards are different in the fact that the balance has to be paid in full upon receipt of the statement, and the card holder is not able to choose monthly payments. This also means that a charge card will not have an annual percentage rate as there is no balance to carry over. It additionally means that the card issuer does not have to disclose any percentage rates, simply because there isn't one to disclose.
Fair Credit and Charge Card Disclosure Act
In 1998 the Fair Credit and Charge Card Disclosure Act was passed by Congress to ensure that all card holders received full details of uniform disclosures or other cost or fees information which is relative to credit or charge cards. The Federal Reserve helped to further implement this new law by amending its Truth in Lending regulation, meaning that card issuers were required to make the information they pass to their card holders as clear and concise as possible to avoid confusion and to aid them in choosing which card is more suitable to them personally.
Another difference between credit cards and charge cards is the fact that while you can borrow money from a credit card you will usually have to pay a higher rate of interest back to the issuer. A charge card however, will let you borrow money, but because there is no monthly payment plan and no rollover payments, it will have to be repaid within 30 days or you risk being penalized by the issuer. While this may seem a little harsh, it does keep your spending costs down and reduces the amount of money you owe financial institutions to a minimum.
There isn't really that much difference in the cards when it comes to using them, but repaying the balance owed is where the difference lies. Credit cards will offer you the better deal for short-term financing if you have a higher limit. This is ideal for larger purchases such as appliances or electronics which tend to be more expensive. If you can possibly split the overall cost into approximately three payments then the finance charges can be kept to a minimum, but the temptation is always there to make smaller monthly payments.
Advantages of Owning This Card
A charge card could possibly help you to stay debt free due to having no option but to pay the balance in full every month. Interest is obviously minimal and no long term debt is accrued. A charge card is also a good idea for those wishing to increase their credit score as FICO scoring takes into consideration the different types of credit in use and a charge card is in a different category to a credit card.
If you are unable to decide whether to apply for a credit card or a charge card then there is nothing to stop you applying for both, but it is important not to obtain too many cards as managing them can become complex and confusing, and very often this can escalate into late payments and detrimental marks on your credit score.
By researching the different cards on offer, both credit and charge, and applying for a maximum of two you are limiting any adverse affects to your score. It is also important to remember that the more credit applications you make the more your score will be reduced, which is the last thing you want to do.
When it comes to a choice between credit card and charge card there is not one that is better than the other. It all depends on your particular circumstances and your repayment preferences. If you are confident that you will be able to make full payments on anything you purchase every month, then the charge card might be the better option for you, whereas if you are unsure about a large payment every month and smaller repayments would be the better option, then applying for a credit card would be more practical.
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