No Pre-Set Spending Limit Credit Card: Is It Bad?

I recently received a notice from Citibank regarding upgrading my Dividend Platinum card to Dividend World MasterCard. Among the changes that come along with the new card, the “No Pre-Set Spending Limit” is one features I don’t have with any of my existing cards.

At first, I thought it’s pretty cool to have a card that doesn’t have a spending limit (though the notice says “No pre-set spending limit does not mean unlimited spending”). But later, a question came up: how a no-limit card will affect my credit score?

With other cards that do have a credit limit, the credit utilization ratio (the ratio between used credit and the total credit) accounts about 30% in the calculation of credit scores, according to myFICO. However, if it’s a card with no limit, then there will be no utilization ratio. Suppose I charge $10 on the card, what the ratio would be? What if I charge $10,000?

I then did a search and found this article, Credit cards that hurt your credit score, on Though the article is more than one year old, it explains how credit score could be affected by the no-limit cards. And it turns out that the idea of having a no-limit card isn’t really as cool as it appears because

if the card has no limit, the credit-scoring company can’t make the credit-utilization calculation, and that has an impact on credit scores.

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I am fine if the card doesn’t have “an impact on credit scores,” but what really happens could be that I only have a $10 credit limit as oppose to no-limit and if I make a $10 charge on the card, I could end up with a utilization ratio of 100%. Here’s why:

credit card companies that offer no-preset-limit cards will, typically, allow credit-scoring companies to use the highest balance in place of the limit to calculate your credit utilization. So, if the cardholder has a $20,000 balance one month, that becomes the limit used for credit utilization.

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So the card could have no impact on total credit line ($10), but could be a big negative on credit score (100% utilization ratio). The article offers two ways to deal with no-limit card:

  1. Run a huge charge on the card, thus, if the card company indeed reports the highest balance as credit limit, that will be the credit limit; or
  2. Close the account for good.

The first one could be done with a 0% balance transfer which I assume I will get with the new card. However, since Citi is now charging 3% fee on balance transfer, the arbitrage is not as profitable as before. I can still do it for the sake of getting a higher limit. The problem is, from the article, Citi doesn’t seem to always report the high balance as credit limit.

Actually, since Citi revised Dividend card’s reward policy last year, mine has been sitting in the drawer collecting dust. I have no plan to put the card back into my wallet, therefore, I may just cancel the card, which was opened in 2002, and move the $13,000 credit line to the UPromise card. Another reason to close the card is there will be a new account number on the World MasterCard when it arrives, essentially terminates the old card anyway.

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8 Responses to “No Pre-Set Spending Limit Credit Card: Is It Bad?”

  1. Steve T |  May 16, 2007 at 11:08 am

    I received the same notice and decided not to upgrade. I am very comfortable with the current CitiCard and decided the no-limit and the concierge service were not worth changing credit card numbers. The call to cancel the upgrade was mostly painless. “Shawn” tried to sell me on a daily credit monitor service but did not try to hard-sell when I refused.

  2. Moneymonk |  May 16, 2007 at 11:50 am

    I do not have a credit card, but I know many people that do. From what they say their AMEX that has no limit DO in fact hurts their credit score, bc it cannot commpute the debt to available credit ratio. It looks as if they have reach their limit regardless of the amount.

  3. Sun |  May 16, 2007 at 9:42 pm

    Steve: Thanks for the idea of rejecting the upgrade. I just called Citi and told them not to upgrade my card. So I got to keep my account number and the credit history of the card. The new card doesn’t really have anything I want.

  4. David |  May 17, 2007 at 3:01 pm

    I have both a Capital One and Chase card without limits and both do not report a limit on my credit report. They do report the max which I have purposely made very high. My credit score is very high so no limit cards do not always hurt you.

    Also, some card companies like Capital One don’t report max for any cards, not just unlimited cards.

  5. Chris |  May 17, 2007 at 6:25 pm

    I have a MBNA Visa Signature no-limit credit card. My monthly statements still list a credit limit, though it was not being reported to the credit agencies. All I did was call MBNA and told them to report my credit limit to the 3 reporting agencies, and viola, all done!

    All you have to do is call and ask for them to report it.

  6. Miss Bee |  May 18, 2007 at 12:48 am

    Just called and declined the change. Painless didn’t try to sell me anything maybe because it is 1 am and he sounded like I just woke him up after letting the phone ring 8 times. I didn’t like the idea of the card number changing, I didn’t wanna lose the history.

  7. credit card holder |  May 18, 2007 at 4:26 am

    All that creditors do should never skip your close attention as they do it not without potential profit for themselves. If you receive such a notice and you do want to accept, scrutinize the terms amd charges as they inevitably change…

  8. Garrett |  Nov 06, 2007 at 7:52 am

    I have both a Alaska Air and Chase card without limits and both do not report a limit on my credit report.

    Also, some card companies like Chase don’t report max for any cards, not just unlimited cards.