The Difference Between a Charge Card and a Credit Card

Personal Credit

This week I received the following email from a Minter regarding charge cards.

“John, Last year I finally finished paying off over $7,000 of credit card debt with the help of Consumer Credit Counseling Service. 

It took me over 2 years but now I’m debt free and I have sterling credit. The last time I checked my credit scores were over 750. 

I’m getting a lot of credit card offers in the mail and while I’m quite sure I’ve learned my lesson, I don’t feel comfortable jumping right back into the credit card market. 

A buddy of mine suggested a charge card. What do you think? I want a plastic option because I hate carrying cash.”


First off congratulations on working your way out of credit card debt the honorable way, by actually paying it off.

You are learning what too many people never find out, that by paying off credit card debt through a debt management program offered by Consumer Credit Counseling Service you exit the program debt free and with great credit.

And if you’re gun shy about opening a new credit card there are certainly other plastic options that won’t expose you to credit card debt.

A charge card is not a credit card, but they do function almost identically. You can use a charge card everywhere you can use a credit card.

You swipe, you buy, you walk out of the store. The differences between charge and credit really exist in the underlying terms.

Interest Rates

First off, charge cards do not have interest rates because you are not allowed to carry or “revolve” a balance from one month to the next.

They are what are referred to as a “pay in full” product, meaning you have to pay the entire balance by the due date.

So, if you charge $1,000 one month you have to pay the card issuer $1,000.

Credit Limits

Next, charge cards have no published credit limits, like traditional credit cards. Instead of a credit limit a charge card has what’s referred to as a “shadow limit.”

A shadow limit, which charge card issuers hate to acknowledge, is their version of a credit limit.

Clearly you can’t go out and use your charge card to buy a $90,000 Porsche (although there are some exceptions for the ultra-wealthy).

The shadow limit is the uppermost boundary on your spending capacity.


Finally, most charge cards have annual fees. The annual fee is one of the primary ways banks make money off of charge card use in lieu of interest income.

The fees vary by card type but some will be in excess of $400. And while many people will view annual fees as a deal killer, I wouldn’t be so quick to eliminate them as an option.

Many people use charge cards for business expenses because of their business friendly rewards programs.

Some charge cards reward you with cash back, airline miles, airline club access, and companion airline tickets.

I have a charge card that I use for business and the perks would cost me well over $1,000 annual if I bought them independently.

So, for some people the annual fee represents a heavily discounted price for things you might buy anyway.

The Bottom Line

If you use a charge card properly you’ll never have to worry about credit card debt because it’s impossible to get into it with their pay-in-full structure.

And, most charge cards are reported to the national credit bureaus so they can be very helpful in maintaining or building a solid credit history and credit score.

As always, experiences vary and those of us who are responsible user of charge cards (and credit cards) don’t ever have to worry about the adverse consequences of mismanagement.

John Ulzheimer is the Credit Expert at, and a credit blogger at, and the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO and Equifax, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of or Intuit. You can follow John on Google+ or Twitter here.