Credit Cards versus Charge Cards

By: Michael Millington

Credit cards are a popular form of buying power in today’s society. If you have one, you have the ability to borrow money and pay it back. But there is another type of card that follows similar rules. This would be called a charge card. A charge card also allows you to borrow money for purchases, but there are certain differences between the two types of cards. Most people know about credit cards, but some do confuse charge cards as being the same thing. How are they different, and which one is better?

 

Credit Cards: Interest, or Lack There Of

 

One of the main attributes of a credit card is its interest rate. It’s one of the things that people generally look out for when looking to apply for a credit card. Some interest rates can be steep depending on your credit rating, while others can be negotiated down with responsible use of the credit provided. If you make a payment on the entire amount you owe on your credit card, you can avoid a monthly interest charge. However, a credit card may often allow you to take your balance into the next month (granted you don’t mind paying applicable interest).

Charge cards, on the other hand, have no such penalty. There are no interest fees associated with charge cards because these cards need to be paid off in full each month. If the charge card is not paid off, it will automatically go into default. Most charge cards require an applicant to have an exceptional credit rating. Because of this, it is assumed by the creditor that the cardholder can cover the cost of the charge card purchases each month. Having a charge card exchanges one type of penalty for another.

The benefit in each card resides in the abilities of the cardholder. A cardholder that doesn’t have the ability to make a full payment on their balance each month would benefit from having a traditional credit card. This way they can make payments that they can handle without the looming fear of defaulting on their card. A cardholder that does not want to deal with added fees for carrying a balance each month might prefer a charge card over a credit card. This will allow the cardholder to pay off the entire balance every month to avoid negative effects.

 

Preset Spending Limits

When dealing with credit cards, you know you have a certain credit limit determined by your credit provider. It’s a strict cut off, similar to knowing how much money you have in the bank to spend. You’re prevented from going over your limit (in most instances) and you must pay back what you’ve spent in order to use your credit again. In many cases, responsible use of a credit card might result in a lender increasing the credit limit of the card.

Instead of having a set limit, charge cards simply allow you to make purchases based on your personal, financial information. The charge card provider will take this information into account and predetermine how much money you can spend each month before being stopped. Most of the time you won’t know what your limit will be until you’re denied a purchase. You may have the ability to contact a charge card provider to grant you the ability to make a purchase if one is declined.

The difference here is in the ability to discipline yourself to monitor your spending. Although credit cards have set spending limits, you can still end up spending well beyond what you can pay back. It’s the “spend now, pay later” mentality that can allow people to spend too much on their credit cards. A charge card doesn’t give that freedom and forces you to pay closer attention to what you spend. Not being able to pay off the balance each month would result in your charge card going into default.

 

The Options are Endless (Almost)

 

                The amount of credit cards you can apply for is staggering. Most banks, credit providers and even a few store chains offer a form of credit card. There are credit cards that offer many types of benefits, interest rates and credit limits. There are credit cards for people with excellent credit. There are credit cards for those with poor credit. There are even secured credit cards for those who are rebuilding (or building) their credit.

Many people are confused when they learn about charge cards. Initially, charge cards seem to be like any other credit card. However, there are fewer charge cards available to people than actual credit cards. Aside from their newer offerings, American Express has traditionally offered charge cards to the general public. Diner’s Club also offers charge cards for purchases. Generally, those with exceptional credit can apply for a charge card without fear of rejection.

Having a pristine credit rating amongst other financial benchmarks can give you access to higher credit limits, lower interest rates and better benefits amongst credit cards. Though you may have a more limited selection in credit card with a lower credit rating, you’ll still have more options to garner credit than if you were looking to get a charge card. Unless you’re certain about your credit rating, you might have a harder time getting accepted for one of the few charge cards available. You might want to do some research into your options before considering filling out any applications.

 

Whether a credit card or a charge card, there are many things to keep in mind when choosing to open a new line of credit. However, if you do find yourself facing overwhelming debt due to credit, don’t hesitate to contact Guardian Debt Relief to seek professional debt relief. Credit card debt can grow into a true financial problem, one that we have extensive experience in settling. We can provide you with a free consultation that will answer your questions and show you what your options are in dealing with your debt. Take the first step in reaching debt freedom and contact Guardian Debt Relief today.