Difference Between Charge Card and Credit Card

In the world of personal finance, it’s essential to understand the tools available for managing your money and making purchases. Two common financial products are charge cards and credit cards. Although they might seem similar, they have key differences that can affect how you use them and how they impact your finances. This guide will explain charge cards and credit cards in simple terms, helping you decide which one might be the best for your needs.

What is a Charge Card?

A charge card is a type of payment card that allows you to make purchases without using cash. However, there are some specific features that set it apart from a credit card.

No Pre-set Spending Limit

Unlike credit cards, charge cards usually don’t have a pre-set spending limit. This means you can spend more freely without worrying about hitting a cap, as long as you have a good payment history with the card issuer.

Pay in Full Every Month

One of the most important aspects of a charge card is that you must pay off your balance in full each month. You can’t carry a balance from month to month, and failing to pay in full can result in hefty fees and penalties.

No Interest Charges

Because you are required to pay your balance in full each month, charge cards don’t have interest rates. This can be beneficial if you want to avoid interest charges and manage your spending carefully.

What is a Credit Card?

A credit card is another type of payment card, but it has different rules and features compared to a charge card.

Pre-set Spending Limit

Credit cards come with a pre-set spending limit, which is the maximum amount you can charge to the card. This limit is based on your creditworthiness and other financial factors.

Option to Carry a Balance

With a credit card, you have the option to carry a balance from month to month. If you don’t pay off your full balance, you’ll incur interest charges on the remaining amount.

Interest Charges

Credit cards come with interest rates, often referred to as the Annual Percentage Rate (APR). If you carry a balance, you’ll be charged interest based on the APR, which can add up quickly.

Also Read: Get a Credit Card with No Credit History

Key Differences Between Charge Cards and Credit Cards

Understanding the key differences between charge cards and credit cards can help you make an informed decision about which one to use.

Spending Limit

• Charge Card: No pre-set spending limit, offering more flexibility if you have a good payment history.
• Credit Card: Pre-set spending limit based on your creditworthiness.

Payment Requirements

• Charge Card: Must pay the full balance each month. No option to carry a balance.
• Credit Card: Can carry a balance from month to month, but you’ll incur interest charges.

Interest Rates

• Charge Card: No interest rates because you must pay the full balance each month.
• Credit Card: Interest rates apply if you carry a balance.

Pros and Cons

Charge Cards

Pros:

• No interest charges.
• Potentially higher spending flexibility.
• Can help with disciplined spending.

Cons:

• Must pay the full balance each month.
• Potential high fees for late payments.

Credit Cards

Pros:

• Flexibility to carry a balance.
• Can help build credit history.
• Various rewards and benefits.

Cons:

• Interest charges on carried balances.
• Spending limits may restrict large purchases.

Choosing Between a Charge Card and a Credit Card

When deciding between a charge card and a credit card, consider your spending habits and financial goals.

Charge Card is Best For:

• Those who can pay their balance in full each month.
• People who want to avoid interest charges.
• Those looking for flexible spending limits.

Credit Card is Best For:

• Those who need the flexibility to carry a balance.
• People looking to build or improve their credit score.
• Individuals who want rewards and benefits like cashback or travel points.

While we have discussed in detail, about charge cards and credit cards, if you’re looking for a credit card with good cashback and benefits, opt for the Airtel Axis Bank Credit card. The card comes with a host of benefits such as 25% cashback on Airtel recharges, 10% cashback on utility bill payments, annual savings of up to ₹16,000. The interest rate starts at 11.5% only and you get flexible tenure and repayment options.

Apply through the Airtel Thanks app or the website.

Also Read: Mastercard Credit Card: Types, Benefits and Features

FAQs

1. Can I use a charge card everywhere I use a credit card?

Yes, charge cards are accepted at most places that accept credit cards. However, it’s always a good idea to check with the merchant if you’re unsure.

2. What happens if I don’t pay my charge card in full?

If you don’t pay your charge card balance in full, you may incur significant late fees, and the card issuer might restrict your card usage.

3. Can I earn rewards with a charge card?

Yes, many charge cards offer rewards similar to credit cards, such as points, miles, or cashback for purchases.

4. Which type of card is better for building credit?

Both charge cards and credit cards can help build your credit if used responsibly. However, credit cards are more commonly used for this purpose because they report to credit bureaus more frequently.