As many credit score enthusiasts would warn, a credit card with no preset spending limit does not bode well in the goal towards exemplary creditworthiness.

More and more credit cards, especially those with outstanding rewards and cash back, are entering a crowded market and they’re touting the “no preset spending limit” feature to lure unsuspecting consumers.

Before jumping at the thought of limitless swiping at your local mall, know that these cards are not necessary as lucrative as they seem to be.

Having held a Citi Dividend Platinum Select card for 3 years, also my first credit card, I was almost ecstatic to hear that it was being upgraded to a World MasterCard®, with no preset spending limit. But, a little digging made me hesitant to celebrate Citi’s recognition of me as a good customer.

Unfavorable Reporting of Credit Limits

Cards such as Visa Signatures, World MasterCard®s, and American Express charge cards are often advertised as having no preset spending limit. But, credit scores utilize total credit card limits in their formulas.

So, how are these cards accounted for when calculating the debt utilization ratio (card balances divided by total card limits)?

Card issuers have been known to report the highest balance on that statement cycle as the credit limit.

For example, you spend $5,000 during the month and paid back $3,000 before the end of the statement cycle. On your credit report, you would see a $2,000 balance on a card with a $5,000 credit line. If you didn’t pay back anything, your $5,000 balance is also your reported credit limit – resulting in a repulsive 100% debt utilization ratio.

Therefore, the sole purchase of $10 for the month can take a toll on your credit score.

False Impression of Unlimited Spending

It is easy to confuse “no preset spending limit” as “unlimited spending” – masterful wording to trick consumers.

Having no preset spending limit was considered an attractive perk because it was often found with luxury cards such as the American Express Centurion card (a.k.a. Black card).

While cardholders may not have a clue as to how much they could realistically charge on a card with no preset spending limit, card issuers are not going to place blind faith in a customer’s ability to repay the hefty charges on such a card.

After a brief call with a Citi representative, I learned that card issuers do place a “soft” limit on the card account.

It would not be surprising for me to go over this limit without incurring any penalties. However, card issuers reserve the right to decline any purchase of any amount and any time without prior notice.

Not to mention that the idea of unlimited spending may lead to unnecessary debt accumulation.

When It Is Okay

For twenty-somethings like myself, establishing a solid credit history could mean lower interest rates on major loans later in life. That’s why I make it a goal to avoid credit cards that will not post my spending limits onto my credit reports.

Consumers who have little need to maintain a stellar credit history may opt for the exclusive perks that come along with these higher-tiered cards with no preset spending limit.

For example, Visa Signature cardholders get 24/7 concierge service, complimentary benefits on travel, access to events and experiences, and discounted shopping.

If you are being upgraded to and apply for a no preset spending limit card, consider the adverse effects on credit scores and spending behavior.

Follow Simon in the Community and on Twitter: @simonzhen.

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  • Phillip

    “For twenty-somethings like myself, establishing a solid credit history could mean lower interest rates on major loans later in life.”
    As a 40-something let me set you straight, right now.  If I was your Dad I would condemn the living hell out of you.  Getting excited about going into debt, no matter what the credit card is, is SHAMEFUL advice!  You are actually playing into the hands of banks that want to make you their slave.  When you owe them money month in and month out, they OWN you.

    STOP TELLING PEOPLE THEY NEED TO ESTABLISH A SOLID CREDIT HISTORY!!!  How about encouraging people to save their money.  Invest it in a mutual fund with an average annual rate of return of 12%.

    Sadly, you are encouraging people to piss away their money by not only spending it, but you are giving it to large banks, who then turn around and charge YOU 20% on your money.  Funny too, because so many in your generation are decrying the “evil banks” and huge institutions of rich people, but you are so easily sucked into “easy credit”.

    Your advice is almost CRIMINAL!!!

    • DocRichie

      Good advice, Phillip. See my above post….the cards I have are CHARGE cards, not credit cards. I have to pay the balance in full each month, so I use them ONLY for things I can afford and what I would be purchasing anyway, such as gas, eating out, etc. If I can’t pay for it IN FULL at the end of the month, I don’t buy it (well, except cars/houses…but that’s about it…even furniture is paid for).

      And as for getting “credit cards to establish a credit history when you’re in your 20’s”, that depends on how you use a credit card. If used WISELY and only what you can pay off at the end of the month or maybe 2 or 3 months at most, fine, I can buy that. BUT, and this is a HUGE BUT….how many 20-somethings are that mature?? Credit cards aren’t, or absolutely shouldn’t be, for buying a $1000 big screen TV, paying the minimums and taking 5 years to pay off something that you’re not likely to have when you’re still paying for it…AND TIMES as much for it once you factor in interest. Just plain stupid!! If NOT used wisely, credit cards can DESTROY your credit for YEARS…10 years OR MORE if you get in over your head with them.

  • Joe

    Thanks for the advice, they almost suckered me into “upgrading” which would of banged up my credit utilization for credit score.

  • DocRichie

    I have AMEX Platinum. I’ve had the Platinum for several years now. I typically spend anywhere from $2K – $5K per month. I absolutely LOVE it because I know that I have to pay the balance in full each month, so it’s really more like a debit card than a credit card; and knowing I have to pay the balance in full each month, it really makes me think before I buy. I can’t run the balance up on this card and think, “well, I can pay it off slowly”…in fact, it’s NOT a CREDIT card at all…it’s a CHARGE card. 

    Furthermore, AMEX, in no way, shape or form tries to “trick” you into thinking “no preset limit” means “unlimited spending”. It says IN THE INVITATION and once you receive the card, “NO PRESET SPENDING LIMIT DOES NOT MEAN UNLIMITED SPENDING”. It goes on to say that approvals of purchases are based on your spending habits, payment history, income and other factors. Plus, I love the AMEX website because they have a feature that lets you input an amount of a purchase that you are thinking of making and it tells you whether or not the purchase will be approved.

    PLUS, I don’t have to worry about interest rates!! Pay the balance each month on ANY card and the interest is ZERO% APR.

    I love the benefits of the exclusive cards, such as concierge, automatic free hotel upgrades, VIP airport lounges…..WELL worth the $495 a year for the AMEX Platinum. The concierge alone is worth $45/month (which is what the annual fee is ~, not to mention the free, automatic hotel upgrades, early check-in, late check-outs, car rental upgrades. WELL worth it. I use the concierge quite often…for dinner reservations (which I’ve called an hour before I want to go and they’ve ALWAYS gotten me a table even at the last minute on a Friday or Saturday night, primetime, at some of the most exclusive restaurants, and we are whisked right to our table when we get there, no waiting, no matter how many other people are there….that’s worth fee alone, for me…especially since we eat 3-5 times a week and it’s such a DRAG to sit and wait 40 minutes for a table, or longer. I use the concierge for directory assistance…no charge, where Verizon would charge me $2 per directory assistance call.