What No-Limit Credit Cards Can Do to You

Imagine being able to use your credit card without a credit limit. This could just mean no more fears of declination and maxing out for you. So if you’re a businessman or just have lots of money to burn, then you’ll most likely qualify. They are called no-limit credit cards, which as the name implies, with this card, the sky’s the limit and your perks for owning such a card are just as wide and varied.

Being the busy businessman that you are, inarguably this card is perfect for you. But on the contrary, if you take pride in your impeccable credit score, then this card might just do some damage. As they say, you can’t have the best of both worlds.

It all boils down to ones ‘credit utilisation ratio’. This is computed from a cardholder’s overall credit against his outstanding balance. The closer your credit and balance to each other, the higher your ratio. This is a clear indication that you’re nearing in using up your credit limit. Credit bureaus then think you’re a risky credit card holder. So basically, to keep a healthy credit score, you need a lower ratio.

But in having an unlimited funds credit card, you have no figure of credit limit for determining your utilisation ratio. So what credit scoring agencies do is use your highest balance as a credit limit. So if you’ve recently splurged on a luxurious $20,000 vacation, then it’ll be your credit limit.

The easiest solution then would be to charge in large amounts per month and pay it off immediately. When you have a big balance, you have a high credit limit. All’s well that ends well, right? Not quite.

The problem begins when the credit card provider does not report your balance to credit bureaus. This isn’t some error conjurred along the process either. Credit card providers sometimes choose not to report consumers’ ‘big’ balances so as to protect them from appearing as a risk. It could be helpful if not for your different credit card position.

Possibly, you would be too busy to notice the drop in your score. Furthermore, without awareness as to how your no-credit limit card works, your score can considerably suffer in no time. In a span of two months, your impeccable credit rating can drop 50 points or more.

But don’t give up your card just yet. Send a written dispute to card providers and see to it they report your high balances. However if they turn a deaf ear to your request, by all means cut the card up. There is no use enjoying unrestricted credit card usage when your credit reputation is heavily tarnished.