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.
Challenging Your Credit Report
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.
Miranda is freelance journalist. She specializes in topics related to money, especially personal finance, small business, and investing. You can read more of my writing at Planting Money Seeds.