Charge Cards vs. Credit Cards: Knowing the Difference

With multiple types of credit cards available, you have a variety of options to choose from based on your requirements. They also offer exclusive benefits, such as cashback, partner discounts, and reward points. However, most cards come with a fixed limit, and spending beyond that isn’t possible or comes with high charges. 

You can opt for a charge card if you need an alternative without a pre-set spending limit. These cards don’t come with a predetermined limit, but with the condition that you pay the bill in full. So, you cannot carry forward any balance and have the flexibility to spend as per your budget.

Dive deep into what a charge credit card is and how it differs from a credit card. 

How Do Credit Cards Work? 

You can borrow up to your credit limit to meet your planned or unplanned expenses. At the end of the billing cycle, the issuer will generate a credit card statement for all the transactions. 

The statement also mentions the due date and the minimum amount you can repay. If you don’t pay before the date, the issuer levies late payment fees and interest on the outstanding amount. You can avoid the late payment fees by paying the minimum balance, but the outstanding amount will still attract interest.

How Do Charge Cards work?

Like a credit card, you can borrow money from this type of card and utilise the fund without any end-use restriction. At the end of the month, the issuer will generate your statement with the total payable amount. Since it doesn’t have the option to make a minimum payment or balance transfer, you need to make only one payment. 

As such, you need to pay the full amount at the end of the month, or it will attract a late payment penalty. This card helps you become a responsible borrower and helps you avoid paying interest charges.

Key Differences 

Here is a tabulated overview to better understand the difference between these two cards.

Parameters Credit CardsCharge Cards
Credit LimitDepending on your eligibility and card type No pre-set limit
Interest RateFixed rate No APR, as you have to pay the full balance each month
Late FeeLevied, but you can avoid it by paying the minimum dueUnavoidable high late payment fee charged
Types Multiple types of credit cards cater to different requirementsOnly one type is available
Credit Score Required Usually 750+, but not required for a secured card Requires excellent credit score
Annual Fees May or may not have any annual fee, depending on the card typeHigh amount levied 
Credit UtilisationUsually impacts your credit utilisation ratioNo effect as there is no credit limit 

How to Choose Between Them 

Now that you know how they are different, here are the most important parameters to help you choose the right one.  

Spending Habits

Depending on how well you can manage your credit and repay it on time, you can choose either of the options. Charge cards are ideal if you can handle and repay the debts on time and in full. This option is suitable if you require a substantial amount of credit.

If you don’t need surplus funds for frequent, large-scale transactions, consider getting a credit card instead. 

Financial Capacity

As a rule of thumb, borrow only as much as you need to avoid unnecessary debt. However, your credit limit also plays a major role in your reliance on credit. Charge cards are ideal if you can pay the borrowed amount in a single payment. 

Do you need to borrow funds but can’t pay them back immediately? Simply choose a credit card. This card gives you the option to pay only 5% of your payable amount, helping you avoid late payment fees. Thereafter, you can pay the outstanding balance in the next billing cycle. 

Building Credit

Both options can help you build a credit history and your credit score. However, due to its nature, there is a high risk of default with the charge card. It also does not affect your credit utilisation ratio, as this card has no limit.

Comparing Perks 

Similar to choosing a credit card vs a debit card for making purchases, compare the perks and privileges you can enjoy for charge and credit cards. A charge card gives high reward points and travel benefits. But credit cards give you offers based on their type, such as partner discounts, cashback, EMI facilities, other rewards, etc. 

Understanding their differences and benefits allows you to choose wisely and opt for the card that fits your needs. If a credit card is your preference, then consider opting for the One Credit Card. This is a smart metal credit card that gives you many pocket-friendly benefits. 

This includes a 5X reward program on your top two transaction categories, a no-cost EMI option, a variety of discounts, and cashback offers. You can easily track all these benefits and your transactions with the One Credit Card app to better manage your card. Apply online for a hassle-free application process and swift approval on this lifetime-free credit card.

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