Credit – Debit and Charge: Sizing Up the Cards in Your Wallet

Before now, I really was confused about the difference between a credit card, a debit card, and a charge card. At some point, I thought credit cards and debit cards were one and the same, not until I came across information such as this. Credit cards, debit cards, and charge cards all offer separate and distinct services and benefits. You can apply for any of these cards, depending on what your needs are.

Credit Cards

A credit card is a payment card that allows you to borrow money against a line of credit, known as a credit limit. It is issued to cardholders to enable them to pay a merchant for goods and services depending on the cardholder’s agreement with the lender. The card issuer creates a revolving account and grants a line of credit to the cardholder, from which the cardholder can borrow from to make payments.

A credit card is quite different from a charge card. This is because a charge card requires a balance to be repaid in full each month. This is much unlike credit cards which allow consumers to build a continuing balance of debt, which is subject to interest being charged. A credit card typically involves a third-party entity that pays the seller and is reimbursed by the buyer.

Features of Credit Card

  • With a credit card, you get charged interest on your purchases. To avoid paying interest, avoid carrying a balance over from month to month. Credit cards come with high-interest rates, and your credit card balance and payment history may impact your credit score.
  • Your credit limit is decided by the bank based on your credit history.
  • You don’t have to sign for in-person credit card purchases.
  • You will owe interest on your purchases if it is not paid off in 30 days.

Debit Cards

You do not have the liberty of overspending with a debit card. This is because you are limited only to the amount available in your checking account.

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Debit cards also offer the same convenience as credit even though it does not require you to borrow money or pay interest or fees on your purchases. Opting for a debit card will help you in managing your money and help you live within what you can afford.

Features of a Debit Card

  • A debit card operates much like plastic checks. When you make a purchase using your debit card. The payment for the purchase is withdrawn directly from your bank account. Where your account has insufficient funds to cover for the expense, your card payment gets declined.
  • Using a debit card online requires you to provide the expiration date. And code on the back of the merchant, before making a charge.
  • If you are using your debit card offline, you will be required to key in a personal identification number (PIN) to initiate the transfer of funds from your bank account to the merchant’s bank account.
  • With debit cards, there are no monthly bills, no interest charges and generally no fees to obtain a debit card from your local bank.
  • Most debit cards are issued by Visa and Mastercard affiliates. So most merchants who accept Visa and Mastercard credit cards also accept the debit cards.
  • Debit cards may be subject to fraud. This is because they have fewer protections against fraud, which can make it more difficult to get your money back.
  • Debit cards do not help you in building credit history and good credit rating.

Charge Cards

A charge card is a type of credit card that needs you to pay your balance in full at the end of each billing cycle instead of making monthly minimum payments on the balance over several months. Charge cards mandate cardholders to become responsible with their spending since they have to pay their balance off each and every month.

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Some charge cards do not have a preset credit limit. This gives you a seemingly limitless amount of spending power. But, charge card issuers do have a soft spending limit for your charge card. This depends on what the credit issuer thinks you can afford to repay each month according to your income, spending, and payment history.

Charge cards are a great option for those who have strong, established credit as well as the ability to pay off their spending in full every month. It offers some nice incentives and perks which help you to avoid spending beyond your means.

Features of a Charge Card

  • Charge cards do not charge any interest on card balance. This is because the card company won’t allow you to carry a balance beyond the grace period. Note, however, that you’ll face a steep penalty if you do not pay your full balance as at when due. The late fee can be a flat fee or a percentage of your balance, depending on the card terms.
  • Charge cards come with an annual fee that may be waived in the first year. Note that they can be quite expensive.
  • Charge cards often come with bigger rewards than credit cards.
  • Charge cards do not allow you to carry balances or make cash advances.
  • A charge card can not be used everywhere.

There you now have the differences between a credit card, debit card, and a charge card. Now you know how they work.

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