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Charge Card vs Credit Card


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Important Disclaimers

Whether it is in one session or over multiple sessions, please try to read every section of both tabs on this page.
An incomplete understanding of this material could potentially serve you much worse than no understanding at all.

You may need to read some sections more than once.
This page explains how billing cycles for credit cards work in the United States.
It would be imprudent for me to even speculate how this material may or may not apply to charge and credit cards issued outside of the United States.
In order to bridge the gap between theory and reality, this page makes references to brands such as American Express and Diners Club.
This website has no association of any kind with either of those brands.
In no way whatsoever does this website speak on behalf of either of those brands or any other third party.


The headings and some of the text have mouse-over effects to liven up the page.
Those effects are independent of your browser's copy-paste functionality.
If you intended to send an excerpt from this page to your wife but mistakenly sent her a prior text intended for your mistress, that is on you not me.
I have not decided whether this page will contain advertising.
The core content of this page takes up even most desktop screens, but one or more advertisements created by skilled graphic artists might enhance the existing text only layout.
Even without advertising and with some simplifying assumptions, it is difficult to present this much information even on a laptop or desktop screen.
On a cellphone screen it is that much more challenging.
To mitigate that, there are some navigation buttons below with which you can jump to sections within this page.














Introduction

This page will explain the difference between charge cards and credit cards for cards issued in the United States.
I will concentrate on explaining statement periods.
Ideally, I would like you to manage your credit cards as if they were charge cards.
If you are old enough, you may remember the Diners Club brand.
Diners Club introduced charge cards before American Express introduced charge cards.
However, now the Diners Club brand is all but forgotten in the United States.
When people think of charge cards today they often think of American Express.
American Express currently offers both its traditional charge cards and also credit cards.
Credit cards are also issued by credit unions, full service banks, and also by companies such Capitol One and Discover which are focused more narrowly on credit cards.
As we stated in the "Types Of Credit" page, credit cards and charge cards are examples of revolving lines of credit.

No Preset Spending Limit

American Express charge cards are known for the language: No Preset Spending Limit.
"No Preset Spending Limit" does NOT mean unlimited spending power.

Interest Compounding

I have not reviewed the Terms and Conditions for your particular credit card accounts, but for most credit card accounts, if you are charged interest that interest compounds daily.
That means that you if you do not pay your statement balance in full by your statement due date you will be charged interest on the total of what was charged, but also interest on your interest.
To try to keep this page simple, I am not going to address the math of daily compounding.
If you are having trouble paying your credit card debt, you likely would be in trouble even if the interest were not compounded.
Think of this website as a game of Tetris.
I would like to bring everyone up to a certain level before we all then advance to the next level.
I think this page will provide a foundation for your knowledge of credit card statement cycles, but if your day job is writing software for building credit card statements you will need to consult additional resources.

Simplifying Assumptions

There are roughly 330 million people living in the United States in 2022.
Despite my best efforts, some people will find this page too complex while others will find it to be too simplistic.
Can't please everyone.
In order to make the table that will follow easy to understand by a large cross-section of the population, in addition to not drilling into interest compounding, I am going to make some simplifying assumptions as described below.
The table below is intended to explain the difference between a charge card and a credit card using what had been for many years the standard definition of a charge card.
American Express has been adding credit card type payment options to its charge cards over the last several years, but I am going to put that aside in order to explain the simplest cases.
In addition, to keep the explanation simple, for the credit card I am going to assume that the minimum payment is 2% of the statement balance and:

In real life:

Depending on your background and learning style your reaction may be either:

Example Billing Cycles

Below is a set of hypothetical statement periods for September, October, and November.
As stated in the "Simplifying Assumptions" section above, the statement periods for the credit card that you ordinarily use will probably not line up on calendar months.
In addition, the number of days between your statement being generated and the corresponding due date may or may not be the same as the 25 days I have listed.
Regardless, if this material is new to you, I suggest taking three of your consecutive statements and comparing them to the table below.

Product TypeCharge CardCredit Card
Spending LimitNPSL$4000
Statement Begin Date ⇾September 1September 1
Post Date ↴Amount Posted ↴Amount Posted ↴
September 7$765$765
September 15$306$306
September 23$612$612
Statement End Date ⇾September 30September 30
September
Statement Produced
Minimum
Payment Due
October 25th
September 07 $765
September 15 $306
September 23 $612
===============
Total $1683
September 07 $765
September 15 $306
September 23 $612
===============
Total $1683 * 2% = $33
Statement Begin Date ⇾October 1October 1
Post Date ↴Amount Posted ↴Amount Posted ↴
October 4th$250$250
October 7th$350$350
October 25thPaid
Towards
Principal
$1683
Paid
Towards
Principal
$33
Statement End Date ⇾October 31October 31
October
Statement Produced
Minimum
Payment Due
November 25th




October 04 $250
October 07 $350
===============
Total $600
September 07 $750
September 15 $300
September 23 $600
October 04 $250
October 07 $350
===============
Total $2250 * 2% = $45
Statement Begin Date ⇾November 1November 1
NovemberNo purchasesNo purchases
Post Date ↴Amount Posted ↴Amount Posted ↴
November 25Paid
Towards
Principal
$600
Paid
Towards
Interest
$45
Statement End Date ⇾November 30November 30
November
Statement Produced
Minimum
Payment Due
December 25th


No Balance
No Payment
Required


September 07 $750
September 15 $300
September 23 $600
October 04 $250
October 07 $350
===============
Total $2250 * 2% = $45


Previous Period Due Date Through Current Period Close

This section regarding due dates and statement closing dates relates to the table above.
You will need to shift the dates to match your statements to see how this information applies to your accounts.
If you are patient, we will discuss the shifting of dates in exercises 4 and 5 further down this page.
The first statement period shown in the table above is from September 1st through September 30th.
The payment for charges that occurred during the first statement period is due October 25th.
The second statement period shown in the table above is from October 1st through October 31st.
Specific to the examples in the table above, the payment for charges made October 1st through October 31st is due November 25th.
That includes charges made on the payment due date of October 25th for charges made during the first statement period through October 31st, the end of the second statement period.
If you submit a payment that is rejected for insufficient funds and neither your bank nor the creditor then closes any of your accounts, that on its own is not definitive proof that your God is the One True God, but it is a datapoint in that direction. If you belong to a religion where the local leaders know the members in person by name, consider putting a little extra in the collection plate once your affairs are in better order.

Billing Cycle Exercises

The goal of this page is to explain the concepts. It is the responsibility of each reader to map how those concepts apply to his or her own accounts. However easy or difficult you find the following exercises, keep in mind that exercises 1 through 3 will be to some degree artificially easy because the statement periods in the table above line up on calendar months, while those of your credit cards quite likely will not.
For each exercise, calculate how the transaction would impact the Charge Card column the table shown above in the "​Example Billing Cycles" section.
The exercises are intended to be performed individually as if no exercise other than the one you are working on had taken place.
For each exercise, if that transaction were added to the table above:

When you expand the Solution section for each exercise, there will be a table with Before and After columns.
The Before column will repeat data from the table above.
The After column will repeat data from the table above but also include the additional data from the exercise.
Before looking at the solutions, if you are on your desktop or laptop, consider creating an Excel worksheet with the before and after posted charges.
Something like this:

DateBeforeAfter
Actual Date$Amount$Amount
Actual Date$Amount$Amount
Additional DateN/A$Amount
Total Due
Actual Date
Total Due
Amount
Total Due
Amount


Exercise 1

On October 17th a charge posts to the charge card from a grocery store purchase for $178.

A charge that posted on October 17th would be part of the October 1 - October 31 statement period.
As shown in the table above, the payment for the October 1 - October 31 statement period is due November 25.
The new total due November 25th would be as shown in the After column below:

DateBeforeAfter
October 04$250$250
October 07$350$350
October 17N/A$178
Total Due
November 25
$600$778


Exercise 2

On November 3rd a charge posts to the charge card for a purchase at a gasoline station for $63.

A charge that posted on November 3rd would be part of the November 1 - November 30 statement period.
As shown in the table above, the payment for the November 1 - November 30 statement period is due December 25.
The November 1 - November 30 billing cycle had no charges in the table above, so the payment due on December 25th would be just the $63 from this exercise.

DateBeforeAfter
November 03N/A$63
Total Due
December 25
$0$63


Exercise 3

On October 28th a charge posts to the charge card from an electronics store purchase for $467.

A charge that posted on October 28th would be part of the October 1 - October 31 statement period.
As shown in the table above, the payment for the October 1 - October 31 statement period is due November 25.
The new total due November 25th would be as shown in the After column below:

DateBeforeAfter
October 04$250$250
October 07$350$350
October 28N/A$467
Total Due
November 25
$600$1067


Regarding Exercises 4 and 5

For exercises 4 and 5, you are going to take what you have learned so far and test whether you know how to apply it to your own accounts.
Assume that the purchases in the table in the Example Billing Cycles section have been made, but none of the payments.
I will ask you to derive the payment amount and payment due by date to get you to engage with the material.
In real life, that information will be provided on your billing statement.
Please do not automatically assume that in real life the payment due by date will or will not be 25 days after the statement period as in my examples and exercises.

Exercise 4

Instead of the first statement period lining up on the month of September, assume that the first statement period was from the first instant of August 20 through the last instant of September 19.
Assume that the first payment is due 25 days after the statement close date of September 19.
Your mission should you choose to accept: write down the date and amount of the first payment due.

New Due Date
For exercise 4, the statement period ends September 19 instead of September 30 as it is listed in the table.
September has 30 days. There are eleven days between September 19 minus September 30.
In question 4 we said the payment is due 25 days after the statement close.
If we subtract 11 from that 25, that leaves 14 more days.
The new payment date is October 14.
New Amount Due
The September 23 charge for $612 will no longer be part of this statement period.
That means that the new payment will be $765 plus $306 for a total of $1071.
New Date and Amount
On October 14 a payment of $1071 will be due.

DateAmount
September 07$765
September 15$306
Total Due
October 14
$1071


Exercise 5

Instead of the first statement period lining up on the month of September, assume that the first statement period was from the first instant of September 6 through the last instant of October 05.
Assume that the first payment is due 25 days after the statement close date of October 05.
Write down the date and amount of the first payment due.

New Due Date
For exercise 5, the statement period ends October 05 instead of September 30 as it is listed in the table.
In question 5 we said the payment is due 25 days after the statement close.
The new payment date is October 30.
New Amount Due
The October 04 charge for $250 will now be part of this statement period.
That means that the new payment will be $765 plus $306 plus $612 plus $250 for a total of $1933.
New Date and Amount
On October 30 a payment of $1933 will be due.

DateAmount
September 07$765
September 15$306
September 23$612
October 04$250
Total Due
October 30
$1933


Exercise Summary

If I were to ask a random person when he or she first learned the months of the year, his or her reply would likely be something such as "Not sure, I have known them as long as I can remember".
Having the statement periods line up on calendar months was intended as a gentle way to introduce statement periods.
I could have created a table with statement periods that straddled the end of one month and the beginning of the next month.
Those very few people whose statements happened to line up on those same dates might have said "This... this is perfect. This is just what I needed".
Everyone else would have had to slide the Statement Begin Dates, Statement End Dates, and Payment Due Dates to line up with those of his or her statements, just as we did in exercises 4 and 5.
Regardless of how much effort I thought I put into creating the table and the exercises above, there is nothing especially memorable about the specific dates and amounts.
Consider yourself free to return to use the exercises to perform a refresher every so often.

Building Credit

A myth I have heard repeatedly is that in order to build your credit score you have to carry a balance as in the example in the Credit Card column in the table in the ​Example Billing Cycles section of this page.
That myth is just that. A myth. It is NOT true.
You might find yourself carrying a balance because either you made an informed choice to finance a purchase or events simply got away from you.
Please do not carry a balance as in the Credit Card column under the mistaken belief that it will help your credit score.
Using either a charge card or a credit card as shown in the Charge Card column of the table in the Example Billing Cycles section is a completely valid way to build credit.

Utilization

As I stated in the previous section, carrying a balance is not necessary for building a credit score.
If fact, not only is it not necessary, it is far from optimal.
Allowing balances to accumulate will likely lead to an increase in your credit utilization.
Credit utilization as reported to credit bureaus as of an instant in time is an important part of widely used credit scores.
Credit utilization is credit used divided by credit line.
The rules behind credit scores are somewhat like the magic in the Chronicles of Narnia by C. S. Lewis.
Once you think you finally understand the rules, there are additional twists.
We will cover credit utilization and some of the associated twists in greater depth in a later page.
For now, I will say that lower credit utilization is better than higher credit utilization.

Balance Chasing

If your credit used continually increases without ever getting paid down, your credit card issuer may become concerned that at some point you will not be able to make payments at all.
At some point a credit card issuer may start "balance chasing".
Balance chasing is when a credit issuer lowers a limit to the current balance or just a little over the current balance.
Balance chasing can touch off a negative feedback loop where one or more revolving credit issuers lowers your credit line, which raises your credit utilization, which lowers your scores, which leads to more rounds of lowering credit limits.

Potential Backfire?

There is a danger that the message of this page could backfire.
At many car dealerships, salespeople are instructed to sell vehicles on the basis of monthly payment.
Naive consumers go along with technique, or worse yet they decide on their own to negotiate the purchase in terms of monthly payments.
While automobiles are known for being depreciating assets, goods and services typically purchased with credit cards lose their value for more quickly.
Is carrying a balance such that you are charged interest at typical credit card rates prudent?
Let's put it this way: Bernie Madoff promised investors returns of around 18% during a time when interest rates were higher than they were in 2022.
Maybe you can pull that off indefinitely but Bernie Madoff could not.

My Takeaway

The columns for the charge card and the credit card would have looked the same if you had paid the balance in full each month.
If you have a credit card, I suggest paying it in full every month just as if it were a classic charge card.
If we needed a more accurate presentation, I would have needed to take into account details such as average daily balance.
I did consider that but I decided it would bring back distant but still painful memories of me introducing myself to the captain of my high school cheerleading team.
Many of my readers would individually and collectively gesture towards their watches and say "As fascinating as what you have to say is, I just remembered that I need to be someplace else."

💡 Cash Flow Tip

Below are two of however many scenarios where the cash flow tip to come does not apply.

For purchasing decisions where you do have flexibility, consider the following tip:
As you may have deduced from "Statement Cycles" tab, you can maximize your short-term cash flow if you make a purchase just after a card's statement period ends instead of just before it ends.
If you make a purchase on a card the day after its statement closes you would have about 30 days until the card's statement is even generated.
Then you have more than 20 additional days until your payment is due.
Close to 2 months, but I advise not cutting making the payment that closely even if you are paying online.
You could have planned to make the payment online on the due date only to find:

Just like any other hypothetical scenarios, neither of the above scenarios matter until one of them happens to you.
All other factors being equal, if you have more than one credit card, for a major purchase you might choose to use the card whose statement has closed most recently.
What I do NOT want to hear, however, is that someone has made purchases that he or she cannot ultimately afford but he or she hopes that somehow between now and when the payment is due the money fairy will magically wave her wand and take care of it.

Enough Rope To Hang Yourself With?

It might be tempting to advertise this tab on this page with text such as "Secrets your credit card company does not want you to know!!"
However, as with most clickbait worthy advertisements, such an advertisement would simply not be true.
In fact, as incentives for opening new credit card accounts, major banks often provide introductory zero interest promotions for the first year or more of having a given card.
Statistically, some number of those new customers will not be able to pay off those balances before the zero interest period ends.
Some customers will even borrow to put money into meme stocks or fall prey to cryptocurrency and/or foreign exchange scams.
If meme stocks were in any way sure things, banks would be in the business of buying meme stocks themselves, not providing credit.
Cryptocurrency and foreign exchange scams are just that: scams.

Determining the absolute last date/time for which a given charge will appear on a given statement is a matter of guesswork.
Theoretically you can make a purchase before your statement closes and have it appear not on the bill for current statement period but rather for the following statement period.
When you purchase something with a charge or credit card, the transactions happens and then there is however much time until the transaction is posted and settled.
That time might range from a few hours to a few days.