The Difference Between Credit Cards and Charge Cards
As I was doing some research earlier today I noticed that some people are a bit confused when it comes to differentiating between credit cards and charge cards. I thought it would be a good idea to make a quick post explaining the differences, as well as the similarities.
Credit Cards
With credit cards, the issuer, usually a bank or financial services company, grants a line of credit that the account holder has been authorized to use at their discretion. The line of credit can be used to purchase goods or services, or in some cases, to get a cash advance on the credit line they have been extended. Credit cards may or may not carry an annual fee.
A credit card is, in all simplicity, a loan. The bank or credit card company that issues the card charges the account holder interest if the outstanding balance is not paid in full by the end of the billing cycle. There is however a grace period that accompanies credit cards that allows cardholders interest free access to their line of credit as long as they pay their balance in full at the end of every billing cycle.
Charge Cards
Charge cards function exactly the same as credit cards with one major exception, cardholders must pay their outstanding balance in full each and every billing cycle. A billing cycle usually lasts around one month. This is where people get confused. With credit cards you have the option to pay in full or carry a balance (known as revolving credit).
Charge cards usually have no spending limits. They are nowhere near as prevalent as their cousin the credit card. American Express offers several charge cards including the Preferred Rewards Gold Card and the Platinum Card from American Express. Charge cards typically carry annual fees that can run on the steep side.
Apart from the aforementioned differences, these two forms of payment are pretty much identical in both form and function.
Related Information:
- Credit Cards vs. Debit Cards vs. Charge Cards A quick and clean explanation of the differences between credit cards, debit cards and charge cards....
- The Differences Between Charge Cards, Credit Cards and Debit Cards A look at how credit cards, charge cards and debit cards are different....
- How Your Annual Percentage Rate is Calculated Find out exactly how the annual percentage rate of your credit card is calculated....
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