I’m sure you have at least one financial card. The two common ones, credit and charge cards, typically look identical; however, the two are different monetary instruments. Both offering convenience and protection, charge cards usually require you to settle the debt within the month. An in-depth look at the key benefits of each will inform your decision on which is better.
Benefits of Credit Cards
Rewards: Most credit cards offer rewards such as cash backs, reward points, gift cards, or travel allowances. Cards usually offer 1% rebates, with some offering as much as 5% cash back on certain purchases. You can leverage these bonuses for grocery shopping, restaurants, or flights. Find a card that matches your spending habits to earn the most valuable rewards.
Fraud Protection: Credit cards offer protection against authorized purchases made through the card. It requires you to promptly report the fraudulent use to the credit card company for hasty resolution. Some companies, including Visa and Mastercard, offer a $0 fraud liability guarantee.
Credit Score: Every credit card use generates a credit report, information crucial to your credit score. It allows you to build a high credit score to enjoy lower interest rates, more negotiation power, and approval for higher credit limits.
Making on-time payments is one way for a positive credit score. Also, responsible credit card use reflects your image positively to credit bureaus.
Universal Acceptance: Credit cards offer the best method for purchases if you travel to foreign countries. Even within the country, credit cards have 99% acceptability. A credit card will make it easy for you to book a flight, rent a room and pay for a car. Most merchants prefer it since it offers them the benefit of security. For instance, they can easily charge for damages.
Insurance: Travel insurance, product warranty and rental car insurance are some benefits of credit cards. Depending on the credit card company, you can benefit from an additional warranty from what the manufacturer offers and enjoy refunds for defective or stolen items.
Benefits of Charge Cards
No interest: Yes! You read that right; charge cards offer zero interest, unlike credit cards. However, the caveat is you should pay the debt fully within the month. Failure to clear the card balance can attract late, poor credit score, and risk of suspension or closure. Charge cards require you to have built-in discipline.
No Spending Limit: Charge cards lack spending limits which allow you to make large purchases. For big spenders, this benefit can be enticing. However, this does not mean unlimited purchasing power. The charge card company frequently reevaluates your limit using factors like payment history and credit score. Conversely, credit cards offer limits that cannot be changed regularly.
Rewards: Similar to credit cards, charge cards offer bonuses, including cash backs, travel mileage and gift cards. So, pick one that matches your spending habits.
Better Credit Score: The process of calculating the credit score is more favorable to credit cards. Since charge cards have no spending limit, they do not utilize the credit utilization ratio. The credit utilization ratio usually measures the amount you borrow compared to the credit limit. Still, you should confirm this with the charge card issuer.
Fraud Protection: Charge cards also offer security against fraudulent use of the card.
Take Away
Both credit cards and charge cards offer comparable benefits. It is wise to review the pros and requirements of each before deciding on what to take.