One requirement of a charge card, such as those offered by American Express and Diner’s Club, is that you pay the balance in full each month when you receive your statement. American Express offers several types of charge cards – Zinc, Green, Gold, and Platinum. A charge card does not allow you to roll over your balance to the next month, whereas a credit card offers a revolving line of credit that does allow this. Visa and MasterCard, as well as American Express and Discover, all offer credit cards.
The credit card and debit card differ with regard to charging interest. The credit card charges interest on amounts borrowed, but a charge card does not charge any interest. You may have a longer grace period to pay on a charge card, usually 40-50 days from the end of the billing cycle. Credit cards give less time to pay your monthly payment, usually around 20-30 days. Charge cards have sizeable late penalties for unpaid balances at the end of the month, either a flat fee, or a percentage of the balance, whichever is higher.
A charge card may have much higher and or even unlimited spending limits, whereas the credit card will have a limited spending limit and a sizeable penalty when you go over the limit. Unlike your credit card, charge cards do not allow any option for cash advances or for balance transfers.
Charge cards affect your credit history just as credit cards do. Charge cards affect your credit utilization component of your credit score.[1] This statistic measures your outstanding balance against your available credit. This component counts for about 30% of your credit score. The lower the utilization, the better it is for your score.
The good news is that since you are required to pay your balance in full each month, you can develop a very good payment history which also reflects on your credit card. Payment history counts for about 35% of your credit score. American Express monitors your credit report and purchasing characteristics to evaluate and calculate your spending limit.[2] If you surpass your cap, your card will be denied.
Another similarity is that both charge and credit cards have rewards programs and other spending incentives, such as extended warranties on products, 90-day purchase protection, roadside assistance, car rental insurance, and travel accident insurance.[3]
Knowing the differences between the charge and the debit card will enable you to take advantages of the best features of each in your credit mix and select the right cards that will most benefit you!
[1] http://articles.boston.com/2010-01-23/business/29319635_1_card-credit-spending-limits
[2] http://freefrombroke.com/charge-cards-credit-cards-understanding-difference/
[3] http://credit.about.com/od/creditcardbasics/a/Charge-Card-vs-Credit-Card.htm
