People with excellent credit essentially have the pick of the litter when it comes to credit cards. They have access to the best credit card rates, lowest fees and most lucrative rewards, and their chances of garnering approval for the cards of their choosing are about as guaranteed as it gets.
However, many cardholders don’t seem satisfied limiting themselves to the traditional perks provided by credit cards for excellent credit. In fact, what they want is unlimited–unlimited spending power. This explains why No Preset Spending Limit (NPSL) cards are some of the most popular products among the roughly 100 million American consumers with excellent credit.
No Preset Spending Limit Doesn’t Equal Unlimited Credit
People think NPSL cards, such as Visa Signature credit cards, World MasterCard credit cards and charge cards from Chase and American Express, provide the ability to spend without limit. Perhaps this is wishful thinking, or just confusion borne from the fact that issuers don’t make much of an effort to debunk this myth. Maybe it’s just a simple misinterpretation of the words “No Preset Spending Limit.” Whatever the case may be, the notion that NPSL cards lack limits is definitely false.
Disadvantages of NPSL Cards
All credit cards have limits. The limits on NPSL cards are just variable and are never communicated to users. Credit card companies base NPSL card limits on a myriad of factors, such as the spending history and payment responsibility of their customers, as well as trends in the economy. As a result, these limits change constantly.
If you have an NPSL card, this presents a problem because you have no way of knowing how much you can charge at any given time and are therefore susceptible to having your card declined.
However, this does not represent the breadth of the issues inherent to NPSL cards. According to a November 2010 NPSL Card Study conducted by CardHub.com, issuers do not report their cards’ actual limits to the credit bureaus either. Instead, they report proxy limits or nothing at all to preserve the lucrative myth of unlimited spending that drives the popularity of NPSL products.
Given that lenders and credit scoring agencies both use information from the major credit bureaus in evaluating consumer responsibility, the possibly misleading picture of your credit usage painted by these proxy limits could have decidedly negative effects on both your credit score and your ability to obtain loans.
An NPSL card’s precise effect is difficult to determine because, as Card Hub’s study revealed, issuers do not use uniform reporting practices and three major issuers–U.S. Bank, Chase and HSBC–refuse to be open about the methods they employ. Therefore, it’s difficult to adjust your spending habits to compensate for the way in which your card is reported.
Ultimately, there is really no reason to do so anyway. NPSL cards don’t bring anything to the table save for deception, spending uncertainty and the possibility of credit score damage. Therefore, they should be avoided and consumers who would otherwise qualify for them should instead open traditional rewards credit cards. After all, rewards cards provide truly lucrative benefit, not simply false promise.
