Beware Credit Cards With No Preset Spending Limits, Study Says

hand with credit card - credit score
hand with credit card - credit score

Most of us know it's important to be aware of our credit limit on each card we have, but a growing class of cards are now being marketed to Americans as having no preset spending limit. While this sounds great, in theory, new research uncovers some hidden drawbacks that can undermine your efforts to keep your credit score high.

According to a report released last month by CardHub.com, many no preset spending limit (NPSL) cards don't report to the credit scoring agencies the same way as traditional credit cards. Some won't report a number at all, and some will use the highest monthly balance you've accrued in the past year. The problem, according to Odysseas Papadimitriou, founder and CEO of CardHub, is that either of these can make it look like you're using a much greater amount of your available credit than you actually are. This, in turn, affects your credit utilization, which makes up a full 30% of your credit score. (Find out what else goes into your credit score.)