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Should Your Credit Card Have No Preset Spending Limit?

by Guest on February 10, 2011

When selecting a credit card or a charge card there are myriad options and features to consider. You must compare rates and fees, decide what type of rewards you want (in any), and determine from which issuer and on what network your card will be.

The breadth of this process is ever-changing as features, products and even credit card companies emerge and fade away. One feature that has surfaced and garnered significant attention recently is called No Preset Spending Limit (NPSL). Visa Signature credit cards, World MasterCard credit cards, and the charge cards from both Chase and American Express all have this feature, but what is NPSL exactly and should you get a credit card with it? Let’s find out.

No Pre-Set Spending Limit (NPSL) Defined

NPSL merely means that a card’s limit is variable, changing on a month-to-month basis in accordance with spending habits, demonstrated payment responsibility and trends in the overall economy.

Therefore, contrary to popular belief, cards with NPSL do not have limitless spending capabilities. In fact, NPSL card limits really only differ from those of standard credit cards in that they change regularly and users don’t know what they are.

Credit card companies don’t release their NPSL cards’ limits because doing so would bust the myth of unlimited spending power that serves as one of the primary reasons many people get such products. Therefore, in terms of spending capabilities, all an NPSL card will really provide relative to a standard credit card is uncertainty.

You never know exactly how much available credit you have at your disposal with an NPSL card, which increases the likelihood that your card will get declined unexpectedly and makes it difficult to budget or feel confident in making large purchases.

Pure spending utility is not the only measure of a credit card though. It is also important to evaluate the NPSL feature’s effect on a user’s credit standing. According to an NPSL Card Study by CardHub.com, in most cases, NPSL issuers report proxies to the credit bureaus in place of their card’s true spending limits, again with the intent of preserving the myth of unlimited spending.

NPSL Cards and Your Credit Score

This practice is significant because FICO (the most widely used credit score) and lenders both incorporate information from the credit bureaus into credit-risk evaluations. As a result, proxy limits can provide a misleading sense of your fiscal responsibility.

For example, a proxy limit that is lower than your actual credit limit will make it seem as if you’ve exhausted more of your available credit than is really the case. Since high credit utilization is negatively regarded by creditors, using an NPSL card could thus result in your credit score falling through no fault of your own.

NPSL issuers also use a variety of different proxy limits, making the effect they have on your credit often unpredictable. In addition, they sometimes simply choose not to report information about their cards’ limits, making it seem as if your card doesn’t provide any revolving credit. In contrast, for their non-NPSL cards, issuers tend to report actual credit limit information, meaning that if you have one, your credit score will only reflect your usage, not a credit card company’s secrecy.

NPSL Cards Not Worth the Hype

By now, it’s becoming pretty clear that the NPSL feature provides no real benefit. This sense is elucidated even further when you consider the fact that excellent credit is required for NPSL card approval.

In comparing NPSL products to other spending vehicles for people with excellent credit, such as traditional rewards credit cards, the answer to our original question becomes quite obvious: No, you should not get a credit card with NPSL.

This article was written by Odysseas Papadimitriou, CEO and Founder of CardHub.com, a website that helps consumers compare credit cards and buy discount gift cards.

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