The Coronavirus pandemic intensified consumers’ need for cashless transactions. Purchasing goods from e-commerce websites, sending cash to relatives, and paying bills without going out of the house increased the usage of mobile wallets, debit cards, credit cards, and charge cards.
A fine line between a credit card and a charge card exists, and consumers may be thinking if there is a difference between the two. They may seem identical, but credit cards and charge cards are two different financial tools. Both are used for cashless transactions, but they differ when the bill comes.
“[A credit card] allows cardholders to borrow funds with which to pay for goods and services with merchants that accept cards for payment.”
Andrew Bloomenthal of Investopedia
Credit cardholders pay back the borrowed money, applicable interest, and agreed-upon charges. Payments are made either in full at the due date or over time.
On the other hand, a charge card “is a type of electronic payment card that charges no interest but requires the user to pay their balance in full upon receipt of the statement,” usually every month, as explained by Investopedia’s finance editor Julia Kagan. It offers an uncapped spending limit with reward benefits for the cardholders.
A charge card allows a more flexible buying power than a credit card since it does not have a preset spending limit. Charge cardholders can have fluctuating amounts of purchases every month. However, it does not mean they have unlimited spending ability. The issuer’s approval is needed for the part that the cardholder wants to charge.
Despite its borrowing limit, credit cards offer more freedom with card holders’ requirement to make monthly minimum payments of the total borrowed money. Making smaller payments could be deceiving as it accrues interest over time; hence, cardholders should still make full monthly payments.
Credit cards are suitable for people who need enough time to pay their bills. Cardholders can avoid interest charges for some time by acquiring a card with an introductory 0% APR offer, which generally lasts from six months to two years.
Another difference between the two is the required credit score. A credit card can be acquired even with a feeble credit score, while a charge card needs a good credit score. Charge card issuers take high risks since the cards they offer have no spending limit feature.
While only some credit cards have rewards programs, all charge cards offer even more great rates. Moreover, hundreds of credit card issuers are available, while there are only limited charge card options.
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