Beware Credit Cards With No Preset Spending Limits, Study Says

hand with credit card - credit scoreMost 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, 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.)Part of the problem, Papadimitriou says, is that many Americans don't realize the impact these cards have (this comment thread on the topic indicates as much). This lack of knowledge, combined with some banks' reluctance to be transparent on the topic of NPSL cards, should make consumers wary, he says.

NPSL cards don't give the user unlimited spending ability, although Papadimitriou says consumers could get that impression and be tempted to overspend as a result.

"This is a marketing gimmick, for lack of a better term," he says. "What they gain is just an illusion that they have unlimited spending powers and that they're part of a select group of customers."

In reality, he says, consumers face two possible drawbacks: They run the risk of being turned down for a purchase if they've spent more than the issuer will permit, and they could have their utilization ratio -- and credit score -- harmed, depending on the issuer's reporting method.

For more information, see the full CardHub report, along with a rundown of how each issuer reports the information and their level of transparency.
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