Updated December 5, 2012

Charge Card vs Credit Card: What's the Difference?

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There are a lot of cards out there, making it difficult to know which plastic to choose for your wallet. One of the best ways to narrow down your options is to first determine if you want a credit card or a charge card.

These days, it seems like the two terms are interchangeable, but there is actually a big difference between a credit card and a charge card. The largest difference is the ability to carry a revolving balance (hint: charge cards don’t allow for this!). But there are other more subtle differences, too, which can play a large role in determining what type of card is best for you.

Here is a quick break down between the two card types, so you can more easily determine which card type to focus on when searching for a new payment option.

Charge Card

As mentioned above, charge cards typically do not allow for revolving balances. This means that you can borrow money only temporarily (typically around 30 days); if you do not pay the balance at the end of the billing cycle, you’ll be hit with a hefty fee that is usually a specific percentage of your balance. Depending upon the terms of the card, your account may also be temporarily suspended until you pay the outstanding balance in full.

Other differences include:

  • Typically charge cards do not have a pre-set credit limit. While credit cards come with a specific amount of money you can charge, many charge cards do not. This doesn’t mean you can automatically buy everything in sight; charge card issuers still reserve the right to decline a transaction.

  • Charge cards often come with a more premium level of rewards or cardholder benefits than those offered with a regular credit card. Keep in mind that this is usually accompanied with a higher annual fee.

Credit Card

Again, the main difference is that credit cards do allow you to carry over a portion of your balance into the next month. This doesn’t mean that you get to skip your payments altogether—credit card companies require a minimum payment each month that is based upon a percentage of your balance. But this payment is typically quite small relative to the overall balance.

Other differences include:

  • With a credit card you will be charged interest on balances that you carry over to the next billing cycle. This can really add up, so you’ll still want to think twice before going on a huge shopping spree.

  • Your card will usually come with a set credit limit; depending on the credit card, you will either be charged a fee or your transactions will be denied if you exceed your limit. Credit card issuers will often allow you to request credit limit increases, so you don’t have to be locked into a lower limit forever.

  • You may or may not have an annual fee. While the vast majority of charge cards have annual fees, there are still plenty of credit cards out there that offer no annual fee.

  • You may or may not have rewards or other card holder benefits. Again, while many charge cards automatically provide their cardholders with premium perks, there are many “plain vanilla” credit cards that simply provide purchasing power. So, you’ll want to look around if you want a credit card that offers a little more such as cash back credit cards.

  • Credit cards typically allow additional transactions than are available with charge cards, including balance transfers and cash advances.

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