Credit Cards, Charge Cards – Do they do the Same Job?


Photo: NextAdvisor

Credit cards Vs charge cards:

Confused about their meaning or what you use them to do? Let’s take the two one after another.

A credit card is a card for making payments. It is usually issued by commercial institutions, usually a bank or credit union, to cardholders – the users – to help them make payments for goods and services. The payment is made by the credit card issuer on your behalf, with the undertaking that you would pay them back. When paying your card issuer for payments made on your behalf, you also pay charges, usually for the services rendered to you.

In other words, you borrow money with your credit card to pay for goods and services. The operation with credit cards usually involve a third – party. This third-party is actually the lender of the money you are borrowing. The institution that issued the card usually borrows money from a third-party on an agreed interest. When lending you the money, your card issuer will calculate both the interest of the lender and their own interest (charge) together and give it to you as your credit card charges/fees.

Credit cards do not need monthly balancing. You can keep borrowing on and on! – So far you do not exceed your limit. However, when you do not pay after six months or more, you can have a charge-off. And when you have a charge-off, it is on your record or credit report and you are liable to pay the debts within 3-10 years.
There are types of credit cards: business credit cards and secured credit cards.

Business credit cards are used solely for business purposes. It is issued on the identity of a given business and can only be used for the business transaction/purchases.

Secured credit card is the type of credit card a deposit account holder can apply for. The cardholder is expected to deposit a certain amount of money in their account. Then they can make purchases or pay for services not exceeding the upper limit of their deposit. The deposit is not used for payment of their bills, however. It is only debited or used to offset cardholder’s bill in the event of delinquency or when the cardholder’s account is closed. So as the name goes, it is a form of security provided by the cardholder for the card issuer. In the event that the cardholder acquires more debts than they have in their deposit, they are still liable to offset the extra bills.

A third type of credit card, the prepaid credit card, is not a credit card in the actual sense. Here the card issuer does not offer any credit to the cardholder. The cardholder spends money from already stored money. The money deposited could be by the cardholder, the parents, sibling or spouse, employer, etc; usually done over a long period of time before the cardholder is issued the prepaid credit card for purchases.

Charge cards are also used for purchases or making payments. However, all the payments made by the card issuer are expected to be reimbursed by the cardholder at a defined time or period, usually at the end of the month. This is where it differs from credit cards which are revolving accounts that do not require their bills to be cleared monthly.

Charge cards also do not have spending limits while credit cards do. Another difference between a charge and credit card is that charge cards do not have a third-party. Basically, what a charge card does is to allow the cardholder make purchases, then make payments to the card issuer on later date. No interest, too. Charges are attracted only if the cardholder didn’t make payments at the stipulated time.

Credit cards and charge cards are both methods of payment but differ in their terms of application and reimbursement of payments made.

Written for a client

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