A Comparison of Charge Cards vs Credit Cards
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What Is a Charge Card?
Charge Card vs Credit Card
Monthly payments: You’ll need to pay off a charge card balance each month. With credit cards, you can carry a balance but are required to make a minimum payment each month. Interest charges: Charge cards don’t have interest charges since you’re expected to pay off the balance each month. Credit cards charge interest as long as you have a remaining balance. Spending limits: You’ll be given a credit limit when you’re approved for a credit card that is the total amount you can spend. Your transaction may be denied if you reach your credit limit. In some cases, you can go over the limit, but you’ll be charged a fee. Charge cards, on the other hand, usually don’t have limits, but the card issuer may put a cap on how much you can spend. This limit may change based on factors such as your income, credit and payment history.
Effect on Credit Score
Payments: You could build stronger credit if you consistently make on-time payment on your charge card or credit card. Late payments are usually reported to the credit bureaus and can negatively affect your score. That’s why one of the biggest tips on improving credit is paying on time. Inquiries: Both a charge card or credit card issuer will review your credit profile when you submit an application. Doing so typically means you’ll be subject to a hard credit inquiry and could affect your score. Utilization: Credit utilization refers to the percentage of your total available credit you use. It's one of the major factors that credit scoring companies use, and if it’s too high, it suggests to lenders that you could be stretched too thin financially and could result in a lower credit score. Since charge cards don’t have a preset spending limit, it could be hard to determine your credit utilization. Some credit scoring models may not factor your charge card into your credit utilization ratio.
Pros and Cons of Charge Cards
What Types of Companies Offer Charge Cards?
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