- 1 Is Your No Pre-Set Spending Limit Card Negatively Affecting Your Credit Score?
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Is Your No Pre-Set Spending Limit Card Negatively Affecting Your Credit Score?
Many credit cards have pre-set spending limits. These limits allow you to see exactly how close you are to maxing them out — and they make it easier for a credit score to be developed from determining your credit utilization. This is a big deal because your credit utilization ratio influences your credit score quite a bit. If you have a credit card or charge card that does not have a pre-set spending limit, things can get a little trickier.
How Creditors Report Your No Pre-Set Spending Limit Card to the Bureaus
As you know, your FICO score is figured using information that is reported to the credit bureaus. How a card issuer reports your credit card information to the bureaus affects your credit score, especially in the case of no pre-set spending limit credit cards. These are credit cards that do not let you know the pre-set spending limit. So you might not be able tell exactly how much room you have left. If you have a charge card that needs to be paid off each month, or if you pay of your credit card each month, it’s usually not such a big problem as far as your spending ability is concerned.
The issue comes in when it is time for the creditor to report your credit limit to the bureaus. In some cases, your no pre-set spending limit credit card will not even be included in credit utilization ratios. Card Hub offers this explanation of when these types of cards are included in credit utilization ratios:
Based on the results of these inquires, we found that not all NPSL cards are included in the credit utilization variable of consumers’ credit scores. A FICO spokesperson confirmed that these cards are only included in the utilization ratio if their trade line is categorized as a revolving credit card and either a credit limit or high balance amount is reported. Additionally, if the account is reported as an open line of credit, as opposed to a revolving credit card, it will be excluded from utilization calculations.
The problem with credit card issuers that report a high balance, or report your no pre-set spending limit credit card as a revolving credit card, is that it appears that you might be going over your limit — even if you aren’t. Card Hub concluded that it is better for your credit score if a card that has no pre-set limit on it is not included in the credit utilization part of your score.
If you want your no pre-set spending limit credit card reported differently on your credit history, you will need to take action. You can talk to your creditor about the possibility of reporting the card as an open line of credit, rather than a revolving credit card. You can also ask that a high balance not be reported. You should make this request in writing. You can also write to the credit bureaus about this issue, explaining the type of card you have, and asking that it be reported differently. The credit bureau will coordinate with your creditor to determine how the account is reported in the future.
These cards can be a real hassle in some cases, and if they aren’t reported a certain way, your credit score could end up suffering in a way that could cost you a loan, or that could result in you making higher interest payments. Always make sure that your creditors are accurately reporting information to the credit bureaus; it will save you money — and frustration — in the long run.
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Credit Implications Associated with a No Spending Limit Credit Card
Most credit cards come with a credit limit which is usually based on several factors determined by the credit card issuer. On the other hand, with a No Preset Spending Limit Card, cardholders do not have a spending limit defined by the credit limit on their card. Instead, the limit of expenditure is decided based on payment history, income, and spending patterns. This preset limit can change, and often you can increase your limit simply by requesting it. Many people wonder if obtaining these types of cards would have an adverse impact on their credit score. Let’s take a look at the credit implications of a No Preset Spending Limit Credit Card.
NPSL cards came onto the market several years ago as a way to give customers a type of hybrid card. They are a combination of a credit card, with a set credit limit, but the ability to pay only the minimum balance, and a charge card, which has no limit but requires that you pay the amount in full each month. Many people choose to use these types of cards for their excellent points programs, purchase protection, concierge services, and other features.
Credit Score Impact of No Preset Spending Limit Card
Many believe that NPSLs set back their credit score. However, this depends on how exactly your credit limit is reported to the various credit bureaus. Part of what determines your credit score is your credit utilization, which is the amount of your credit limit that is being used. The calculation of your credit score depends on what credit limit your issuer reported to the credit bureau. If the issuer does not report a credit limit, then the credit agency will not use this credit card account when determining your credit utilization. That being said, if the issuer instead reports the highest balance on your card, then your credit score could be negatively impacted.
The reason as to why some people do run into trouble with an NPSL card is the fact that card issuers are known to be extremely inconsistent in how they report this type of credit card to credit bureaus. Due to this, obtaining this kind of card does come with a certain amount of uncertainty, in that it can be hard to know for sure how and if using an NPSL card will impact your credit score.
Factors That Will Determine if Your NPSL Card Will Affect Your Credit Score
You should have nothing to worry about in regards to your credit score, as long as your NPSL’s utilization percentage, as well as the utilization percentage on your other credit cards is relatively small. If you have a charge card and not a revolving card, then your NPSL will be excluded from calculating your credit utilization by most FICO scoring models. Additionally, whether or not your NPSL card is reported as a charge or credit card, if you have a high credit amount or no credit limit then your card will also be excluded from utilization calculations.
If your NPSL card is used for determining your credit utilization, then similar to any credit card, it’s important that you stay way below your limit or high balance. If you have a low balance, then you can deal with this by making a substantial purchase to increase it and then proceed to pay it off that same month. If your NPSL is not used in your credit utilization, then it likely is the best card to use for major purchases.