There are almost 2.8 billion credit cards in circulation and used worldwide.

Several people worldwide have become highly reliant on credit cards as their go-to mode of payment, but that’s not the only option they have. Charge cards have become an increasingly popular option. However, there are several differences between these cards and how they operate.

These differences can define whether you want to use a credit or charge card. Keep reading to learn more about what credit and charge cards are and how they differ.

What Is a Credit Card?

A credit card is one of the most common and popular forms of alternative payments. The bank issues it for the user to borrow funds to pay for products and services at shops, stores, and outlets where credit cards are accepted. Credit cards are issued with a contract that states that the borrower will return the borrowed money with additional applicable interest on fund usage.

Excessive card usage may result in some additional credit card rewards issued by local stores, shops, and merchants. Moreover, a person can qualify for several types of credit cards. These include VISA cards, Master cards, Discover cards, and American Express. These cards offer several incentives to customers, including travel rewards, rental discounts, gift certificates, and cashback on online shopping.

What Is a Charge Card?

Although a charge card is similar to a credit card in several ways, some defining features create a visible difference between the two. Contrary to a credit card, a charge card doesn’t have a credit limit instead all of the transactions are either approved on spending patterns, credit score, and credit history.

A bank or financial institution will consider your credit history, past spending patterns, and how quickly you repay the debt before allowing you to hold a charge card. Moreover, unlike credit cards, you have to completely pay off the transactions you made at the month’s end.

4 Major Differences Between a Credit and Charge Card

While both credit and charge cards were introduced to simplify online shopping and other aspects of spending, some key defining features set these two apart. While many people might still confuse the two, learning about these differences might help you make a better financial decision.

Let’s explore!

1.   Spending Limit

One of the major differences between a credit card and a charge card is the spending limit set for both cards.

Credit cards have a maximum limit you cannot exceed; once you reach that limit, you first have to pay off the balance and then continue shopping again. However, you don’t necessarily have a cap for charge cards. Instead, you can continue shopping as long as you are paying off the balance in full at the end of the month.

2.   Payment Options

Many people assume that charge cards can be paid off similarly to credit cards, but that’s not true. While for a credit card, you can easily pay off the minimum monthly amount and continue using your card despite any remaining balance. For a charge card, you must make full monthly payments at the end of the month if you want to continue using your card.

The convenience offered by credit card payments is why it’s still a more popular option amongst many individuals.

3.   Annual Charges

Not every financial institution takes annual charges, but it largely depends on your chosen card. For a charge card, the norm is that there are certain annual charges, but some institutions might waive the first year’s charges as an incentive.

However, a credit card usually won’t come bearing annual charges. The annual charges and their payment would solely depend on the card you choose. Some cards might have no charges, while another might charge hefty annual charges.

4.   Availability

While credit cards are usually available for everyone, charge cards are only issued to people with good credit scores and histories. People with a good credit history might acquire a charge card more easily than someone with a bad credit score.

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About the Author

The author is a financial analyst that specializes in assessing different financial statements. They analyze market trends and blog about them in their spare time to help individuals make better and more informed decisions about spending their money and acquiring financial loans, etc.