Credit Cards With No Preset Spending Limit

An American Express card

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Some credit cards have credit limits assigned to the credit card. Any cardholder who's approved for that credit card would be approved for that credit limit. Or the credit card issuer may assign a credit limit based on your past credit history. Either way, the credit limit you have when you get your credit card can easily be the limit you have as long as you have that card.

What is a No Preset Spending Limit?

Most people would assume no preset spending limit means you have unlimited purchasing power with that credit card. No preset spending limit cards are great, but not that great.

Credit cards with no preset spending limit don't have a defined credit limit for that card. Instead, each borrower's spending limit is decided based on his or her income, payment history, the number of credit cards, previous spending patterns, and other financial factors the credit card issuer is aware of. Credit card issuers don't publicize their exact methods for calculating cardholders' spending limits, so it's hard to predict what your spending limit will be.

One of the drawbacks of having a credit card without a preset spending limit is that you never really know how much you're able to spend on the credit card. On a credit card with a credit limit, you can check your balance and available credit to know whether you're able to make a purchase. You don't have the same ability on a credit card without a preset spending limit.

Instead of having a credit limit increase to make more credit available to you, the spending limit adjusts periodically based on your spending and payment habits. You may be allowed to occasionally exceed your spending limit at the credit card issuer's discretion. You can also be denied for a purchase that's outside your normal limits, even if your spending limit is high enough for the charge. On the other hand, you can often have your limit increased by request.

No preset spending limit credit cards are given to borrowers who have an excellent credit history, those who've shown they can responsibly use a credit limit. They're also common with charge cards which require you to pay your balance in full each month.

No Preset Spending Limit Impact on Credit Score

No preset spending limit credit cards are rumored to have a negative effect on your credit score, but it depends on how your credit limit is reported to the credit bureaus. Part of your credit score considers your credit utilization—how much of your credit limit is being used.

The credit score calculation depends on the credit limit your credit card issuer reports to the credit bureau. If there's no credit limit reported, the credit scoring calculation (at least the FICO score) ignores that credit card for the purpose of calculating credit utilization. However, if the credit card issuer reports your highest balance or your current credit limit, your credit score could be affected if your balance is the same as or close to whichever number the credit card issuer reports as your credit limit.

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