How a “No Spending Limit” Credit Card Affects Your Score
“No Preset Spending Limit” (NPSL) cards are not your usual credit cards, and contrary to what many people may think, the term “No Preset Spending Limit” itself does not mean unlimited spending ability. For some cases, it may simply mean that the issuers will not disclose the card’s spending limit to the cardholder and therefore they will approve transactions according to their discretion. Other possibilities include a disclosure of a revolving credit line and approving transactions which exceed such line at the issuer’s discretion without charging any over-limit penalty. In other words, you can use a very large amount on your NPSL card but you will be required to pay the balance off monthly. The “No Preset Spending Limit” cards are also unique in their repayment terms, as some banks require monthly charges to be paid directly as a whole whereas other banks may only require full payment for the amount charged beyond the revolving credit line.
Since the NPSL is not the most common credit card type, terms and conditions greatly differ from one card issuer of another. The NPSL card has also caused difficulties in determining a cardholder’s credit utilization ratio since there is a lack of clarity in credit limit for NPSL cards. Hence, determining the effect of using a NPSL card to the credit score will be really intricate because the credit utilization ratio — which is an extremely important factor of credit score calculation — is not known specifically. The proportion that a credit line has used up, which equals to the proportion of its balances compared to the total credit limit on revolving cards make almost up to 30 percent of the total score.
Significant differences can also lie in reporting the information of NPSL card limits to the credit reporting agencies. The result of inquiries made to 10 different credit card issuers in the United States reveals that not every NPSL card is taken into account in the credit utilization ratio of the customer’s credit scores. These NPSL card will only be included in the aforesaid ratio when their trade line can be deemed as a revolving credit card, and there is either one of the credit limit or high balance amount that is being reported. Furthermore, due to the lack of information of a reported credit limit, the high balance instead will be used to replace the ‘limit’ in calculating the utilization ratio. For this reason, it is actually better for your NPSL card to be excluded from the calculation of such utilization ratio, because it will prevent the NPSL’s absence of credit limit to negatively impact the customer’s calculation result. With regards to this matter, there is no certain answer in answering the question of how will a NPSL card affect your credit score, because there exists huge differences between one card issuer’s policy to another. Nevertheless, the NPSL card usually is written as a “flexible spending credit card” in the credit report, where card issuers a lot of time reports a typically high credit limit to the bureau.
If you happen to already have a NPSL card with you at hand, you can employ a few strategies in order to prevent it from lowering your credit score. Essentially, your credit scores will not be at risk as long as the credit utilization ratio of your NPSL combined with all your other cards is low. Furthermore, if your NPSL is of the charge type instead of the revolving one, take note that it will not be taken into account for your credit utilization ratio calculation in the most recent FICO model of score. If you are not aware of the type of your card yet, just remember that a charge card must be fully paid at the end of the month. Last but not least, an NPSL card will definitely be excluded from any kind of credit utilization ratio calculation if there is no credit limit and high credit amount reported, so you may want to use your card wisely. Each time you are using your NPSL card to buy something expensive, be reminded of the lack of clarity in the card’s credit limit and hence the card issuer has the power to reject your transaction request.
