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 cardholders a credit limit based on their past credit history. Either way, the credit limit you have when you get your credit card could easily be the limit you have as long as you have that card.

There's another type of credit card, one with no preset spending limit. This card's limit is more flexible, and this feature comes with its own set of advantages and disadvantages.

What "No Preset Spending Limit" Really Means

Some people may assume "no preset spending limit" means you have unlimited purchasing power with that credit card. That isn't the case. Cards without preset spending limits 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 determined by their income, payment history, the number of credit cards they already have, previous spending patterns, and other financial factors. 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.

That unpredictability is one of the drawbacks of having a credit card without a preset spending limit—you never really know how much you're able to spend on the credit card. On a credit card with a set 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.

On the other hand, instead of having to request a credit limit increase whenever you'd like more credit made available to you, your spending limit will automatically adjust itself periodically, based on your spending and payment habits. You can often have your limit increased by request, as well. 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.

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.

The Credit Score Impact of a No Limit Credit Card

The part of your credit score in question here is your credit utilization—how much of your credit limit is being used. This data makes up a significant chunk of your credit score, so it's an important one to pay attention to. However, while there are rumors that credit cards without a preset spending limit will negatively impact your credit score, it actually depends on how your credit card issuer reports the limit to the credit bureau.

This varies between card issuers, and some may not even report credit limits for cards without preset spending limits. If no credit limit is reported, the credit scoring calculation (at least the FICO score) ignores that credit card while calculating credit utilization.

The credit card issuer could also choose to report your highest balance as your credit limit, or it could use your current credit limit. If either of those is the case, your credit score could be affected based on the ratio between your current balance and the number the credit card issuer reports as your credit limit.

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