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Difference Between Charge Cards and Credit Cards
Credit cards are a useful financial tool for consumers and businesses. Credit cards are more convenient and secure than carrying cash first of all. If you lose a card, you simply cancel it and you have nothing to worry about. Even is someone has used your card issuers will refund that money. Credit cards also let you shop online, which is something that you can’t do with cash obviously.
They also make record keeping easier for businesses and consumers alike and usually save you money or earn you rewards as long as you pay your bill in full every month. That period between the time you make a purchase and the due date, could also help with cash flow. Then there are things like warranty or purchase protection, travel insurance and other perks and benefits that card issuers usually provide for premium cards.
But when you are looking to sign up for a new card, besides the welcome bonus and perks, you should know whether a card is actually a credit card or a charge card. This is normally not a big issue as it doesn’t make much of a difference when it comes to using your card. But when is time to pay, you might be surprised with your minimum payment due. Let’s see how they differ and which is better suited for your needs.
Credit Cards vs. Charge Cards
Credit cards and charge cards have a few differences. Often it doesn’t make a difference if you have a credit card or a charge card in your wallet but you should be aware of the differences when you make a decision on what card to apply for, or which card to use for a purchase. Charge cards aren’t as widely offered as credit cards and most of them are issued by American Express.
When you are approved for a credit card, issuers give you a credit limit. Charge cards on the other hand generally have no preset spending limit. But that doesn’t mean you can just charge your next yacht on the card. Charge card still have an unpublished maximum spending limit which is based on your spending habits, income, credit and other factors.
The financial institution will adjust that unpublished spending limit for charge cards based on your purchases and payment history. These adjustments are helpful when you need to make large purchases. American Express offers a feature for its cards that lets you check your spending power at any given time. You enter an amount that you plan to spend, and Amex will tell you if you are able to do it.
The limit on credit cards is not fixed for life either. You can still request a credit increase, or issuers might even lower your limit in some cases.
Not having a pre-set spending limit can be a benefit for some people. If you continuously make large purchases, charge cards could be a better option as your limit will adjust as you go and you shouldn’t have any issues with your purchases. Another positive fact is that charge card balances won’t impact your credit scores as credit cards. Charge cards are no longer considered when calculating your credit utilization, which makes up a big part of your FICO score.
Paying Your Card
On of the main differences is when it comes to paying your card. You’ll have to pay the entire bill in full every month on a charge card. If you don’t, you will be hit with late fees, any future charges may be denied until the balance is paid. The financial institution might even cancel your account.
While in general you cannot carry a balance on a charge card, American Express has a feature called ‘Pay Over Time‘, which makes charge cards more approachable for consumers. If you are enrolled in this feature, your charge card basically becomes a credit card and you pay an APR for your balances, which is normally higher. If you don’t plan to use this feature, it might be a good idea to unenroll, as you can sometimes get easy bonuses for enrolling.
American Express also has a “Pay It Plan It” feature, which allows cardholders to pay off certain purchases of over $100 with a set payment plan. You pay a fee for this feature instead of the APR.
With credit cards on the other hand, you are only required to pay a minimum payment each month. That minimum payment is much lower that your actual balance, usually between 1% and 3%. You can decide to leave any remaining balance on the card and pay interest on it. That is not a good idea as you have to pay interest which accumulates quickly month after month. But it is a safety net in case you might run into unexpected financial trouble. You can pay a small amount towards your balance and still be up to date with your payments.
A cash advance is when you use a credit card to take money out of an ATM. Credit cards has a set cash advance credit line, which is separate from your regular credit line. Cash advances come with high fees and very high interest rates. So you should always avoid them when possible. It’s a good idea to set your cash advance limit to $0 if you want to avoid them altogether, or whether you are not sure if a certain charge will code as a cash advance.
Cash advances can work differently on charge cards though. American Express offer the Express Cash system on certain types of cards, besides the traditional cash advances. Express Cash requires enrollment and allows enrolled Card Members to withdraw cash from a designated bank account at participating ATMs. This feature makes your charge card a debit card for your bank account, but in addition to any ATM fees, you’ll also pay a fee of 3% or $5.
When applying for a new card, you should first check your credit score. Knowing your credit score lets you know what cards you might be eligible for.
Banks offer credit cards for many levels of credit, varying from bad or no credit to excellent. There are credit cards for students with no credit history, secured cards for people with bad credit and then high-end travel rewards cards for those with good or excellent credit. Annual fees, credit limits, benefits, and rewards can vary based on the issuer, the card and you credit history.
Charge cards on the other hand, require good or excellent credit to qualify. You should generally have a FICO Score above 740 before you apply.
Best Charge Cards
American Express issues the most popular charge cards. There are currently three consumer charge cards offered by American Express and all of them require good to excellent credit and come with annual fees. These fees vary from $150 to $550, so you should take a look at the perks, credits and benefits that each card provides to make sure that you get a card that best fits your needs.
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