No Preset Spending Limit or NPSL credit cards and credit score
This is one difficult and annoying topic. After researching all I could, the conclusion I can offer is this - if your goal is to establish credit history or you worry too much about the effect a credit utilization ratio bears on your already established credit score, then do not use No Pre-Set Spending Limit (NPSL) credit cards. I wish I could stop right here, but allow me to elaborate a bit, for the sake of my loyal readers.
As the name implies, NPSL or No Pre-Set Spending Limit credit cards are just that - cards without a specified spending limit. Obviously, if a credit card does not have a credit limit, it can not be used to determine your credit utilization ratio also called debt utilization, which is an important variable in calculating consumer credit scores, accounting to 30% of the total score weight as explained in How to build credit history fast.
Compounding the problem with NPSL cards that are also called hybrid cards because they combine the features of a typical revolving credit card where you can carry the balance or pay in full each month, with those of a charge card where you can charge without a limit as long as you pay in full by the next billing date, is the fact that each credit card issuer reports NPSL credit cards differently to the 3 main credit reporting agencies.
The bottom line for you is that a No Pre-Set Spending Limit credit card is only included in the debt utilization ratio if its trade line is categorized as a revolving credit card and shows either a credit limit or high balance amount. And according to FICO, a credit card reported as an Open Line of Credit, as opposed to a Revolving Line is not counted for the ratio.
Among the NPSL credit cards are World MasterCard and Visa Signature Card issued by Bank of America, Chase, Citi, Capital One, Wells Fargo, HSBC as well as American Express charge cards which are reported as Open Line of Credit and just as useless for the purpose of credit building, except for a certain TransUnion scoring formula. In addition, certain credit cards you can get at department stores such as Macy's or Kohl's, are reported in the manner similar to that of No Preset Spending Limit credit cards - with neither credit limit nor highest balance amount.
But wait, it get worse when you look at credit reporting by the different issuers. Some report their NPSL cards with credit limits, while others report the highest balance which is typically the most you have ever charged on a card. Some might report neither a credit limit, nor a highest balance. Some report the account type of a NPSL card as a Revolving, while some report as Open Credit Lines. Finally, I found the stories telling about the same credit card, reported one way one month and differently the next.
As noted before, the FICO looks for the credit limit or a highest balance. If your credit report does no show either, the trade line is not taken into consideration for utilisation rate. You could see something like this on credit reports, with EQ, EX and TU being of course, Equifax, Experian and TransUnion,
EQ: reports credit limit and balance, but no highest balance - factoring in FICO utilization scoring
EX: no credit limit, but reports highest balance and balance - factoring in FICO utilization scoring
TU: no credit limit or a high balance, but reports just the balance - not factoring in FICO utilization scoring
To sum it up, the NPSL credit cards does not help you to build credit. In certain cases, they may even hurt your credit score. If you have more questions, read FICO Forums. If you want to start building credit history, consider
Wells Fargo secured credit card
Secured credit card to build credit - Orchard Bank MasterCard
Fri Mar 4, 2011 12:03PM | Copyright: www.bad-credit-advisor.com | More in Credit Repair Tips | Comments (0)
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