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What is the difference between a charge card and a credit card?

By , CardRatings contributor
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At the checkout, do you charge your purchases? Put it on the charge card? Charge it to the credit card?

The terms "charge card" and "credit card" are used so interchangeably that you'd be forgiven if you thought they were the same thing. However, they are most definitely different.

Let's go ahead and run down the differences before you accidentally apply for a charge card when what you really want is a credit card.

Charge cards vs. credit cards

Charge cards and credit cards both let you do the same thing -- buy now and pay later -- but they are very different animals.

With a charge card, you are required to pay off your balance each month. If you fail to do so, you get slapped with a late fee. If you are late or fail to make a complete payment on more than one occasion, you could see your card quickly cancelled.

Credit cards, on the other hand, allow you to carry a balance month to month. You'll pay interest on the balance but so long as you are making monthly minimum payments on time, you can keep on spending until you hit your credit limit.

Which, speaking of limits, charge cards have none. You can spend as much as you want so long as you pay it back at the end of the each month.

Finally, some charge cards can also be used as credit cards. For example, American Express offers a Pay Over Time feature. This option allows charge card holders to make multiple payments for large, qualified purchases.

Which card is right for you?

By far, most of the products offered today are credit cards rather than charge cards, and credit cards typically meet the needs of most consumers. However, you may want to consider a charge card if you are able to pay off your balance each month.

Rewards programs for charge cards are typically much more generous than those offered on credit cards. However, charge cards also often apply an annual fee that can be several hundred or even several thousand dollars. So be sure any rewards points you earn will offset the cost of the card.

In addition to better rewards, charge cards offer more flexibility in terms of your spending. No need to worry about being declined for being over a credit limit, although you need to have the self-discipline to avoid charging more than you can comfortably pay back each month.

Finally, charge cards may make sense for those who have business expenses that are reimbursed each month. Since these costs can vary month to month, charge cards are a convenient way to spend whatever amount is needed while earning significant rewards points. Frequent travelers may also find charge cards are the best travel rewards cards.

While it may seem like splitting hairs to distinguish between a charge card and a credit card, the two operate in very different ways. Before you apply for your next card, take a moment to double check that it is actually the type of card you want.

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