Credit cards can be so liberating in that they are a major tool for unlocking the ability to see the world. Hell, if it weren’t for credit cards and sign-up bonuses I most likely wouldn’t have been able to travel the way I have.
But credit cards aren’t always great, especially if you have trouble paying off your balance each month.
With the sheer amount of card options available to us today, it’s easy to overlook the fact that some of these cards are actually charge cards and not credit cards.
What is the difference?
Let me explain.
Credit cards in the traditional sense are pieces of plastic that allow us to pay for things using money we may not have at that very moment. Card issuers give us these pieces of plastic with a pre-defined spending limit based on our credit history. The limit is determined using a number of different risk algorithms developed by each card issuer.
Each credit card comes with a purchase APR percentage. This is just a fancy term for the amount of interest you’ll get charged for not paying off your statement balances in a timely fashion.
Some people (myself included) use credit cards that have an introductory promotional APR of 0-percent, meaning for a limited time (often 12-15 months) you won’t get charged any interest on purchases. This can be especially advantageous if you are looking to make a large purchase like a laptop and prefer to finance over time with no interest.
Letting balances run over the statement period isn’t the end of the world and if you aren’t holding balances in the thousands, the interest paid most likely won’t move the needle. However, you should always be paying off your card balances at the end of each month and not at the end of each statement due date. That’s my advice 🙂
Charge cards are a bit more tricky and can get you into some trouble. Basically, a charge card is a piece of plastic (or metal) that allows you to pay for things using money you may not have at the moment.
Not quite. Charge cards assume you will pay off your full balance on each statement due date. This means if you bought a $3,000 MacBook using your charge card, you better be able to pay that off that month.
Obviously, you have to get approved for charge cards. Consequences of not paying off your balance in full could result in being banned from ever opening a card with that issuer ever again!
Not all hope is lost, though. If you make a big purchase and find yourself on the brink of not being able to pay your balance, issuers like American Express may offer you the ability to “pay over time” on that particular purchase. This means that that purchase and that purchase only converts to a traditional credit card charge. You have to be approved for this service so my advice is to give them a call and ask.
For some, this “pay over time” feature is automatically added based on credit history and history as a customer with that particular issuer.
There really is no advantage of owning a charge card over a credit card (or vice versa). American Express and Diner’s Club are the two main issuers of charge cards. Just be on the lookout as to which one you are thinking about applying for. The AMEX Platinum card requires a $5,000 minimum spend in 90 days, but it is a charge card, so make sure you keep that in mind.