What is the definition of both of these? What are real world differences of each? Also what are the best sites to learn more about credit? The Library here is great but it doesn't answer all my questions and I don't want to bug you with them ;).

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Experian: 740
Experian: 729

mshafrir@wam.umd.edu
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Mos, feel free to bug us with your questions. Everyone loves sharing their little tidbits of knowledge. It's what makes creditnet so unique. :-)

Credit cards allow you to revolve a balance on a monthly basis, that is, to carry a balance. If you carry the balance, you will pay monthly finance charges. I would say the pros of having a credit card is you can spread large expenses out over time, but the downfall is the interest which can eat you up if you aren't careful.

Charge cards are paid off monthly. So, if you charge $1,000 on that card this month, you will have to pay the entire balance in full. The advantage is no interest is ever accrued, as your balance is paid in full monthly. The disadvantage could be the possibility of charging so high a balance you can't pay it off in full, but if you're responsible, you should be ok. One charge card is American Express Green, and there are others too.

Any more questions, just feel free to ask.

Are charge cards typically higher end cards? Also, besides possible annual usages fees (like on the frequent flier cards), will I ever be charged any additional fees from any card so long as I pay off my balance in full within the same month that I use it? I always pay off my balances as soon as I can online, should I keep doing this? I have never been late, and when people talk about carrying a balance it confuses me because I thought this is exactly what you want to avoid? Doesn't carrying a balance lead to negative notes on your credit report? I don't know enough about credit for the amount I use my credit cards, though I guess I'm doing alright judging by my scores.

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Experian: 740
Experian: 729

mshafrir@wam.umd.edu
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You have to be careful using charge cards because you have to pay the balance in full on the next statement. If you miscalculate and charge more than you can afford to pay at once, you could jeopardize your credit.

You can treat a credit card as a charge card by paying the balance in full to avoid finance charges. On the other hand, you can stretch payments out over time if you want. Because you have this option, a credit card is definitely more flexible than a charge card. Still charge cards have a certain advantage since they don't come with a preset spending limit (such as Amex green).

There are some hybrid cards such as the Visa Signature and Mastercard World which come with a revolving limit but no preset spending limit. If you go over the limit though, you have to pay the excess on the next statement plus whatever the minimum payment is i.e., $5K limit, you charge $7K, you will have to pay $2K plus the minimum payment on $5K.

Most cards come with a grace period for purchases. This means that if you pay the balance in full, you will not incur finance charges. This does not apply to cash advances or balance transfers for which you are charged interest from the date of the transaction until paid in full.

A few banks, notably Providian, do not have a grace period for purchases on some accounts. Everything you charge accrues interest from the date of the transaction until paid. With your credit scores you can and should avoid this type of card.

When you consider whether to apply for a card, you should study the disclosures that accompany the application. Avoid annual fees unless you get rewards for using the card to offset the fees. Make sure there is a grace period for purchases and avoid cards that calculate finance charges by using the two cycle method. Also, check into the reputation of the lender by visiting sites such as epinions.com and creditcardfreedom.com. The creditcardfreedom site has excellent card reviews. Of course, you have to be careful in analyzing any particular review. Everyone has their favorite bank to hate.

Forgot to mention that paying online is a very good thing to do. You avoid the risk of getting slammed with late charges and a punitive APR just because the mail arrived late.

Also, carrying a balance is not per se a bad thing to do. Doing that actually can improve your credit score because the lender is more likely to increase the credit line which helps your debt to limt ratio.

Carrying a high balance is a negative in credit scoring. If you do carry a balance, keep it low most of the time.

Thanks - both charge and credit cards affect your credit rating equally right? Also how do I know if my cards are charge or credit?

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Experian: 740
Experian: 729

mshafrir@wam.umd.edu
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That is disclosed in your cardmember's agreement.

Good questions, BTW.

Rina -- Conquering through Christ... and Creditnet

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Rina -- "In a time of universal deceit, telling the truth is a revolutionary act." -
George Orwell
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