Charge Cards Versus Credit Cards—Which One Is Right for You?

Charge cards come with flexible spending limits and competitive rewards—but are they the right choice for you? Here are the benefits and potential pitfalls, so you can decide for yourself.

With all the different types of credit cards out there, it can be difficult to choose one that fits your needs. But knowing when to charge your credit card or when to use a different type of card can save you money. The key is to know your spending habits and see if any rewards are being offered with a card that you can benefit from.

With no preset limits (and the potential to earn great rewards), charge cards are a great option. But there are a few things to consider before you get your hands on these exclusive cards. Here's what you need to know about charge cards, so you can see if they're the right fit for you.

You have to have an excellent credit score to qualify for a charge card (compared to a credit card).

Charge cards generally require you to have a much higher credit score than traditional credit cards, so that could be the deciding factor between the two.

"Getting approved for this type of account requires an excellent credit rating and ideally a good job history with one company for at least two years," says certified financial advisor Jenna Lofton. A strong credit history shows the card company that you are able to consistently make repayments.

Credit cards are much more lenient with credit scores and history. While a good-to-excellent credit score will qualify you for higher spending limits, lower interest rates, and cards with better rewards, you can generally find credit cards for users of all credit levels. If you don't have much of a credit history or have a poor one, get a credit card and use that to build good credit—that way you can qualify for a charge card down the line. You can build credit with a charge card too, but since they don't have set limits, they don't factor in credit utilization, which makes up your overall credit score.

Charge cards require you to pay your entire balance each month and don't allow you to carry a balance.

There's a reason why charge cards generally don't have a set spending limit—you are expected to pay the balance in full each month. While there are some companies like American Express (the main issuer of charge cards) that offer hybrid versions of charge cards that allow you to pay over time on purchases over $100 (with interest), most require you to pay the entire balance at the end of each billing cycle, says Phil Dengler, co-owner of The Vacationer, a resource for travel and credit card guides. Popular charge cards include the American Express Platinum and Green cards. The consequences for not paying your bill on time or missing payments can range from late fees to getting your charge card canceled. It's also important to note that charge cards are not fully unlimited—issuers will set a spending limit based on your credit history.

Credit cards do have spending limits and will charge you if you go over your credit line—but they allow you to carry a balance each month. You can pay the minimum payment to maintain your credit score and history, but you will be charged interest on any balance that carries over, and the interest compounds every month.

With the current average interest rate on credit cards over 16 percent, it's a good idea to try and pay you balance off in full every month to save money on interest payments. "Every credit cardholder would benefit from treating their card as a charge card," says Ted Rossman, senior industry analyst at Use it to make purchases, earn those rewards and then pay it in full before interest hits."

Charge cards offer competitive rewards—but also have high annual fees.

Charge cards do offer competitive rewards such as travel insurance, travel upgrades, and more rewards on everyday purchases like gas or groceries.

"Many charge cards have great reward incentives for purchases, so placing your cell phone or other recurring bills onto it and paying it off in full each month is a great way to rack up the reward points," says Jamilah N. McCluney, financial advisor and specialist at Black Wealth Financial. If you run a business and want to keep track of company expenses like office supplies, travel, or meals, a charge card can help you do that while earning you rewards. As long as you know you can pay the balance off at the end of the month, you're good.

Charge cards definitely have some tempting perks to look into, but they generally have high annual fees, ranging anywhere from $100 to over $500. While there are credit cards that charge annual fees, there are plenty that don't and still offer tons of great rewards such as sign-up bonuses and cash back on purchases.

A charge card can help you spend within your means, and save you money on interest.

In general, a charge card requires discipline to maintain. Credit cards do too, but the minimum payments can be a slippery slope if you're not careful with your spending.

"It's very easy to fall quickly into debt as credit card companies have very low monthly repayment minimums on credit cards," says McCluney. If you're looking to build better credit habits, a charge card might help you spend within your means and help you avoid the hefty interest payments that can come with using a credit card. Whether you decide on a credit card or qualify for a charge card (or have both) it's wise to make monthly payments in full whenever possible to avoid hurting your credit score and staying out of credit card debt.

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