The Difference Between Credit Cards and Charge Cards

To many a “charge card” and “credit card” are the same thing and the terms are used interchangeably, however there are distinct differences in these types of cards that clearly set them apart. These unique features can determine customer availability as well as impact credit scores.

What is a charge card?

A charge card is a payment card that requires the balance of purchases to be paid off in full each and every month. There is generally not a preset limit on charge cards, instead spending habits, payment history, credit record and financial resources determine for how much a purchaser will be approved. These factors are continually monitored to adjust spending limit. This means that charge card customers will not incur over-limit fees and do not need to apply for larger limits as with credit cards.

Since all balances are to be paid off in full each month, there are no interest rates or minimums associated with charge cards. Payments are also usually required within 40 to 50 days from the close of billing cycles as opposed to 25 to 30 days with most credit cards. If full payment is not made on a charge card, there are penalties and late fees that are incurred.

Just as with credit cards, there is an annual fee that is determined by the type of card you have. For example the annual fees for Amex vary widely depending on spending habits and your spending limits. Annual fees include membership in rewards programs and additional perks.

How do I know if I qualify?

Since charge cards do not have preset spending limits and require to be paid off in full, the qualification requirements are generally higher than credit cards. If you have less than stellar credit, you may still qualify for a low limit credit card, or can even get a secured card where you deposit money to cover your limit. To qualify for a charge card, one must usually have a strong credit background.

Affecting credit score

Credit cards and credit cards can also widely vary in the way they impact your credit score. Since charge cards do not allow the user to carry over a balance, they are a way to build credit history without the risk of racking up expensive debt. The other area that charge cards vary greatly from credit cards in terms of credit is in credit utilization. Credit utilization is a highly weighted factor in credit scores that is based off a user’s credit balance versus available credit. Since charge cards do not carry a set limit and cannot carry a revolving balance, they are excluded from credit utilization in credit score factoring.

What does this mean for merchants?While credit cards are king in the US, charge cards are a growing alternative that are becoming more widely accepted every year. Opting not to allow charge cards as a payment method, among other alternative payment methods, could cause you to lose business to other merchants based on your customers’ preferred payment methods. To add charge cards and other alternative payment methods to your checkout with ease, check out 2000Charge’s list of options for the US and foreign markets.