Q&A: What Credit Limit is Reported to the Bureaus if My Card has No Preset Limit?

Question: What credit limit is reported to the bureaus if my card has no preset limit?

Answer: There are a few credit cards out there that offer a flexible spending limit, also known as "no-preset limit" cards. These cards are reserved for those who have excellent credit histories and who meet other criteria determined by each issuer.

Contrary to popular belief, this doesn't mean that the sky's the limit with your spending. You'll have a limit, but it's flexible in the sense that you can go a little higher without a penalty fee. If you're sensing that the no-preset limit is a little difficult to define, you'd be correct.

American Express explains it this way on their website: "Purchasing power adjusts with your use of the Card, your payment history, credit record and financial resources known to us, and other factors."

See what I mean? The explanation of the card itself is vague. The question about the reported limit is also difficult to answer with certainty because this varies by issuer. Since your credit utilization ratio is calculated using your credit card spending limits, many folks worry that this might negatively impact their scores.

In case you don't know how the utilization ratio is calculated, it's the amount of credit you've used compared to the amount you have available. So the number used as your limit is very important for this calculation. Yes, it's tough to pin down, but there are a couple of things you can do to figure this out.

Ask Your Credit Card Issuer

One way to find out what limit is used is to call your issuer and ask how they report cards with no-preset limit. And while you have them on the phone, ask how much your spending can vary each month. For instance, if you charge $2,000 a month for six straight months, and then you suddenly spend $9,000, there could be a problem because that's a huge jump.

So find out how much variation from month to month is acceptable. Some issuers request that you call and let them know if you want to suddenly spend big one month. That way they can approve (or not approve) of the expenditure ahead of time so your card doesn't get rejected at the register.

On your credit report, these cards are listed in a variety of ways. For example, it might be listed as a "flexible spending" account. As already mentioned, the issue of your credit limit is a bit hazy, but let's take a look at a few ways your limit might be reported:

No credit limit is reported. If no limit at all is reported to the bureaus, then a few different things could occur. Often the highest reported balance is used as the limit. In this case, that high balance is used as the credit limit to calculate the credit utilization ratio.

However, it's possible that the card can be reported in a way that triggers the FICO score to ignore the credit card when it comes to calculating your credit utilization ratio. You still get credit for your payment history, but the card doesn't contribute to your ratio.

Highest or current balance is reported. Let's say you spend $7,000 one month and that's the largest balance you've ever had. Some issuers will use this as the "limit" for purposes of calculating the ratio. One way to avoid having this method ruin your score is to spend big one month to set the limit, which in this case, is $7,000. To maintain your excellent score, you'll want to make sure your balance stays below 30 percent of $7,000, or $2,100. Note: To truly enhance your score, keep the balance under 10 percent of the reported limit.

If the current balance is used, that's a problem. That makes it look like you maxed out your card because your utilization is 100 percent of the limit. For example, your current balance is $7,000 and the limit is reported as $7,000. This comes out to a 100 percent utilization ratio, which is not a good thing at all for your score.

Review Your Credit Reports

As you can see, this topic is actually quite complex and you might have to talk with a supervisor to get an answer. If you still don't get a straight answer to the credit limit question, which is possible, then you can figure this out for yourself. You get three free credit reports every 12 months from each of the major credit bureaus.

Request your official free credit reports and see how the card is listed. If it's reported as an "open line," then it will most likely not be used in the ratio calculation. But if it's reported as a "revolving account," then the limit given will be used for the ratio. Take a look at your account balance and compare that to the credit limit that's listed.

Basically, if your score is still in the excellent range, you don't need to spend too much time worrying about this. A good way to monitor your credit range since you don't see a credit score on your report is to use LendingTree's free score. If your ratio is very high, you'll be informed when you receive the credit summary for your score.

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