Debit, Credit, or Charge Card? Here Are the Key Differences

Debit cards, credit cards, and charge cards all you to swipe to pay, but with important distinctions.
7 minute read | 5/16/19May 16, 2019
Man trying to identify the card type he owns

In this day and age, there’s ample talk about moving to a “cashless society” as people more frequently skip cash in favor of paying with cards you can swipe or tap. There are many different kinds of cards you can use to pay for in-person and online purchases, each with some important differences.

When deciding which is right for you, it’s important to understand the similarities and differences between a charge card, credit card, and debit card. This guide can help.

Charge card vs. debit card vs. credit card

How it works
  • Charge cards allow you to buy now and pay when your statement comes, but your balance must always be paid off in full with each statement.
  • Credit cards allow you to buy now and pay later, borrowing money you can pay off over time by making minimum payments.
  • Debit cards can be used like credit cards, but they pull money directly out of your bank account. You can’t exceed your available cash without overdrafting your account.
Common requisites
  • Charge cards: Most come with an annual fee, and they usually require good or excellent credit.
  • Credit cards: Most, but not all, credit card issuers require fair or good credit and proof of income.
  • Debit cards: You’ll need a bank account from a bank that offers debit cards (most do).
Monthly payments
  • Charge cards: You must pay the balance in full every month.
  • Credit cards: You’re required to make a small minimum payment monthly.
  • Debit cards: Money is taken directly from your checking account, so no payments are required.
Spending limits
  • Charge cards: Generally no pre-set spending limits.
  • Credit cards: Spend up to your credit limit.
  • Debit cards: You can only spend what’s in your checking account.
Credit reporting
  • Charge cards: Your payment history is reported to credit reporting agencies, but charge cards don’t factor into credit utilization ratios.
  • Credit cards: Credit card companies report your utilization ratio and payment history, which both affect your credit score.
  • Debit cards: Debit cards don’t affect your credit history.
Reward perks
  • Charge cards: Generous rewards are available on most cards.
  • Credit cards: Some, but not all, cards offer rewards.
  • Debit cards: Only a few debit cards provide rewards for purchases.

How charge cards work

Like credit cards, charge cards can be used to make purchases that you pay for later when you receive an account statement in the mail.

Charge cards typically have no pre-set spending limits, but card issuers could decline transactions if they think you’re charging too much. You also can’t just make minimum payments when you have a charge card; you’re required to pay the card off in full each month when your statement comes.

American Express is one of the only issuers of charge cards. Many of their cards have high annual fees but also offer generous rewards. For example, the Platinum Card from American Express is a charge card with a $550 annual fee. But there are benefits that can help offset the fee.

You can earn up to $200 in Uber credits annually, are eligible for a $200 airline fee credit each year, get access to multiple airport lounges, and can earn five points per dollar spent on flights or hotels purchased through Amex. Those perks could make the annual fee worthwhile if you get a lot of use from them.

Pros and cons of charge cards:

  • Pro: You can score generous rewards with many of the charge cards on the market.
  • Pro: You won’t have to pay interest on purchases because your card must be paid in full each month.
  • Pro: You can’t carry a balance from month to month, so you won’t get stuck in credit card debt for potentially years.
  • Pro: Your charge card doesn’t report credit utilization ratio, so you won’t hurt your credit if you charge too much. But payment history is reported, so you can help your credit if you pay on time.
  • Pro: Charge cards have no pre-set spending limit, so you can usually charge as much as you’d like — so long as you can afford to pay your bill at the end of the month.
  • Con: You have limited choices — Amex is one of the only issuers of charge cards — and most cards carry a hefty annual fee.
  • Con: You can have your account closed or face very high costs if you can’t pay off your balance in full.
  • Con: Charge cards (particularly those issued by Amex) may not be accepted everywhere. You may need to carry a backup payment method.

How credit cards work

Credit cards allow you to swipe or tap to make a purchase, then make payments toward those purchases when you receive a statement every month. You can charge up to your credit limit, which is set by the credit card issuer.

You also don’t have to pay off your balance in full every month; you have the option to make only small minimum payments. But if you don’t pay off your balance in full, you’ll be stuck paying high interest fees.

There are a wide array of different credit cards catering to different people. Some cards are reserved for people with excellent credit; these often have the most generous rewards and best terms.

But people with fair or even poor credit can almost always find some type of card they’ll be approved for, even if it’s a secured card that requires a deposit to serve as collateral. For example, the Capital One Secured Mastercard is one option for people with bad credit.

Many credit cards offer some type of rewards for spending. The Capital One Savor Cash Rewards card, for example, provides 8% cash back on tickets at Vivid Seats through May 2020, 4% unlimited cash back on dining and entertainment, 2% at grocery stores, and 1% cash back on all other purchases, while the Chase Sapphire Reserve provides triple points on dining and travel worldwide.

Other perks, such as statement credits and airline lounge access, may also be available. The Chase Sapphire Reserve provides a $300 annual travel statement credit, along with complimentary access to Priority Pass lounges.

Some credit cards have annual fees, just as most charge cards do. The Sapphire Reserve described above charges $450 per year and an additional $75 for each authorized user.

There are also cards with no annual fee — although the rewards and perks they offer typically aren’t as good. The Capital One Quicksilver Cash Rewards card has no annual fee but provides 1.5% cash back rewards on every purchase, every day.

Pros and cons of credit cards:

  • Pro: There’s a wide selection of credit cards, so almost everyone can find a card that’s a good fit.
  • Pro: Many credit cards charge no annual fee, and both free cards and cards with a fee often provide rewards for spending.
  • Pro: Credit cards often run special promotions that can help you save on interest. For example, some cards offer 0% interest on purchases for several months when you open a new card.
  • Pro: You’ll know up front how much credit is available to you and may also have the opportunity to request credit line increases. Knowing you have access to a large line of credit can be helpful in case you need quick cash to handle an emergency situation.
  • Con: You don’t have to pay your balance in full each month, so you could end up carrying a balance and paying a fortune in interest charges.
  • Con: You can only spend up to your credit limit, which may not be as high as you’d prefer. Plus, your credit utilization ratio is reported to the major credit reporting agencies, so you could end up hurting your credit score if your card balance exceeds 30% of your credit limit.
  • Con: You can’t use a credit card for every purchase. Some places don’t accept credit cards or charge an added processing fee if you pay with a card.
  • Con: Credit cards often charge additional fees, such as fees for transactions outside of the U.S. or charges if you exceed your credit limit.

How debit cards work

Debit cards work differently than credit cards or charge cards. You aren’t buying now and paying later with a debit card — even though you can swipe your debit card just like a credit or charge card.

Instead, your debit card is linked to your checking account, and money is pulled right from your account whenever you make a purchase. If you try to use your debit card to buy something you don’t have enough money in the bank to cover, your card could be declined, or you could be charged with an overdraft fee for going negative in your bank account.

Debit cards are issued by the bank you have your checking account with, so there are many choices. There are no fees for having a debit card in most cases.

There’s usually no rewards for shopping with a debit card, although a few debit cards do reward you for spending. Discover, for example, has a Cashback Debit Account that allows you to earn 1% cash back on up to $3,000 in debit card purchases each month.

Pros and cons of debit cards:

  • Pro: You’re paying with your own money, so you don’t need to worry about paying interest or making a monthly payment.
  • Pro: Your credit score doesn’t determine if you’ll be approved for a debit card; all you need is an eligible checking account.
  • Pro: Most banks offer debit cards, so you have a wide selection of options.
  • Con: You could overdraft your account and get hit with big bank fees.
  • Con: Your debit card doesn’t report to the credit reporting agencies and won’t help you build credit.
  • Con: Only a few debit cards offer rewards, and most aren’t as generous as credit card rewards programs.

Understanding the differences between a charge card vs. credit card vs. debit card

Now you know the key differences between a charge card, credit card, and debit card and can decide which payment method is right for you.

Remember, no matter which one you pick, you should shop around carefully to find the best bank, best charge card, or best credit card issuer that offers the most generous rewards with the lowest fees.

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