Ask Your Advocate: Charge, Credit, Debit—What’s The Diff?

I recently got an offer in the mail for a charge card. How is this different from my credit card or my debit card?c

–S. Chung
New York

A charge card differs from a credit card because you’re required to pay the balance in full each month. In addition, there is no periodic or annual percentage rate since balances are not carried from one billing cycle to the next. (However, some charge cards offer the option to carry over a portion of the debt. Finance charges usually come with this feature.) These cards also do not have a preset spending limit. The traditional American Express card is one example of a charge card.

Furthermore, when it comes to VantageScore and newer versions of the FICO scoring model, charge cards don’t count toward your credit utilization–the ratio of your outstanding balance to your credit limit–when credit reporting agencies calculate your credit score, since charge cards don’t have credit limits. Instead, charge cards count toward your payment history and length of payment history. This means that a high balance will not negatively affect your credit score.

Charge cards are different from your debit card because you are using borrowed money rather than your own. One benefit of a charge card is that you won’t carry debt each month. Charge cards also tend to have better rewards programs. However, if you don’t pay on time, you’ll face late fees and penalties. Know that if you’re interested in applying for a charge card, you’ll need to have good to excellent credit.