Should You Apply for a Charge Card or a Credit Card?

When you apply for a charge card, you should be mindful of small print to assure you know what you are getting into. Many people use the words "charge card" and "credit card" interchangeably. Often, they are talking about the same thing. At times, however, there is an actual difference between the two types of credit that will make a difference in how you pay your bills.

Revolving Debt

The main difference between the two options is how the debt revolves month to month. Generally speaking, a credit card allows you to carry a balance over to the next month. This is called "revolving" debt, and you never have to pay the balance down so long as you are making interest payments on the debt. With a charge card, there may be a different system for handling the debt left at the end of a billing cycle.

You may find you have to pay down the entire debt balance, not just the interest, when the charge cycle closes. If you do not make the entire payment, you would be considered late on your loan payments. This can lead to additional finance charges, a bad credit report and even legal action against you.

When to Apply for a Charge Card

A charge card is much less flexible than a credit card if debt is not permitted to revolve. However, there are times when charge cards are a better option. Because it is less risk to the lender, they may be easier to secure for people with less than perfect credit. If you have a hard time getting a credit card, a charge card may be a viable option to start rebuilding your credit score and still have some flexibility to make purchases.

A charge card may also be a good idea for a business that fully intends to pay all bills each month or each quarter. Some businesses will make all payments at one time, instead of paying each vendor individually. A charge card allows them to make the immediate payment to a vendor using credit. Then, when it comes time to close the books each month, only one bill needs to be paid.

When to Apply for a Credit Card

A credit card is preferable in most situations due to the increased flexibility. With credit, you will have the option of either paying down your entire balance or simply letting a balance ride for a few months while you earn the cash to pay it off. Of course, when you allow a balance to revolve, you will be charged a much greater charge due to the effect of compounding interest.

This can get some borrowers into bad situations if they fail to pay off their credit card debt in a reasonable amount of time. They may find themselves struggling to simply make interest payments each month. If you can manage the debt effectively, however, you will be better suited for a credit card and will find greater benefits with its use.

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