Credit Implications Associated with a No Spending Limit Credit Card
18 Jan, 2018 / By Jennifer Hamilton
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.
Why Customers Use No Preset Spending Limit Cards
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.
Why You May Have an Issue with This Type of Card
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.
Strategies for an NPSL Card
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.