How Do Charge Cards Compare to Low Interest Credit Cards?

A charge card is like a credit card except it is not intended for carrying a balance. You basically make charges on it and pay that balance at the end of the month and never incur interest. So, it is very similar to having a low interest credit card and paying its balance off every billing cycle. But low interest credit cards stack up a little better than charge cards. Here’s why:

Charge cards require the balance to be paid in full after the billing period. The advantage is that you can’t run up huge debts. The disadvantage is that life is seldom that perfect. If you run up a small balance on a low interest credit card and can’t pay it back at the end of the billing cycle then you can extend it a little and pay the interest. Since it is a low interest credit card, the extra paid on the principle is more like a convenience fee. Where low interest credit cards become a problem is where the balance gets carried month after month.

In some cases, a charge card will extend credit on certain types of purchases. If a charge card only offered this charge-and-payback service, it would not make any money to be able to do that. So some charge card memberships allow charges made for airline tickets and hotels to be put into a credit account and it is charged interest just like the traditional low interest credit card. This may be of benefit if you need a larger spending limit to buy high-priced services like airlines and hotels but enjoy the ability to pay them off like a low interest credit card.

On low interest cards, you can get a cash advance in an emergency. With a charge card you cannot because there is technically no credit line to draw from. This could be a definite problem if your car breaks down or you lose cash when you are out of town.

Charge cards have high membership fees compared to most low interest credit cards. This is also another area where the charge cards make their money because they typically do not make as much on interest. You can expect to pay a very hefty annual membership fee even if you do not use the card. Most low interest credit cards do not have high annual fees.

Charge cards advertise no spending limit but that is not always the case. This is something they don’t typically tell you however it won’t apply unless you begin having debt problems. Because of universal default, a charge card company can set a spending limit on you when it determines that your risk is higher. The point is that a charge card cannot be used as an unlimited line of credit and with the high membership fees, you are better off not using it if you are having debt problems.

Charge cards generally have higher income and established credit history requirements compared to low interest credit cards. This is because you are given the freedom to charge high amounts and are expected to pay them right away. No balance is allowed to be carried over and this is a huge responsibility.

For more information on charge cards and low interest credit cards visit US-CreditCards.com and choose between the two.