Credit Cards vs. Debit Cards vs. Charge Cards
Credit Cards – There are some important distinctions to be made between credit cards, debit cards, and charge cards. In the case of a credit card, the bank or issuer extends credit to the card holder, thereby lending the card holder money upon demand. Credit cards are said to be revolving credit because they charge interest on the money that has been borrowed and not repaid in full at the end of the billing cycle. Credit cards are, for all intents and purposes, revolving credit loans.
Debit Cards – Debit cards are an alternative form of cash. They are physically identical to credit cards in size and shape. Debit cards draw on money that you have already deposited with a linked checking account. You cannot get any credit with a debit card. You are strictly limited to whatever balance you currently have in your checking account. Some advantages of using debit cards are that you no longer have to write out a check in a store, can withdraw cash at ATMs, and can use them to order merchandise through catalogs and the Internet.
Charge Cards – There seems to be a general misconception that credit cards and charge cards are the same thing… they are not. Charge cards are very short term extensions of credit that last one billing cycle. In other words, while you can carry a monthly balance with credit cards (revolving credit), charge cards must be paid in full each month. There are no minimum payments with charge cards. Failure to pay in full will result in large late fees and possible loss of the card. American Express is a large issuer of charge cards.
Related Information:
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