In your search for a new credit card, you might have come across cards with no set credit limit. “Wow,” you might think. “I can charge as much as I want!” It’s easy to understand where this myth comes from. But it’s just that — a myth. Not having a specific credit limit doesn’t mean you have a licence to spend obscene amounts of money.

Actually, these no-limit cards aren’t even credit cards. They’re similar, but the differences are important. Let’s explore them.

No-Limit Cards: Credit Cards vs Charge Cards

A credit card features a set credit limit. That’s the total amount you’re allowed to accumulate as your balance — including purchases, cash advances, balance transfers, interest, and fees. If you exceed that limit you’ll be charged a late fee.

When you see a no-limit card, on the other hand, what you’re looking at is a charge card — not a credit card. There is no set credit limit because you aren’t technically being issued a line of credit (which would allow you to pay your purchases off over time). Charge cards are simply tools of convenience. American Express is one of the best-known companies offering charge cards, and they’re often more common in business.

How No-Limit Charge Cards Work

Charge cards work a lot like credit cards, which is why the terms are often used interchangeably. You carry your card instead of cash or cheques, and you can use it to make purchases or pay bills. It also gives you the convenience of being able to pay for things online.

The differences have to do with purchase approvals and payment terms. For example:

• With a credit card you can purchase whatever you want as long as you don’t exceed your credit limit. With charge cards, you have no set spending limit. Instead purchases are approved on an individual basis based on your payment history, purchase history, assets, and other financial factors.
• With a credit card, you can avoid interest by paying your balance in full each month. But you can also choose to finance your purchases by paying your balance off over time. With charge cards you don’t have that option. There is no interest rate advertised, but that’s because you’re required to pay your balance in full every month. Remember, a charge card isn’t a line of credit. It’s just a tool to make it more convenient to spend money you should already have.

If you run a business or otherwise make large purchases, a charge card might be a good option for you. It’s much more convenient than paying via cash or cheque. Your purchases are automatically documented in your account statement for example. And you get to avoid interest (which adds up quickly, especially on large purchase amounts). Before choosing the right card for you, consider both options — credit or charge cards — carefully. Both have their benefits and their drawbacks.