My head started hurting the other day as I tried to make sense of what I was
reading in the FICO Forums about no
preset spending limit (NPSL) cards and the various ways in which their
credit limits, highest balances, and account types appear on credit reports –
and what these reporting differences can mean for your FICO score.
If you don’t yet know about NPSL cards, these World
MasterCard and Visa
Signature cards are “hybrid” cards that combine the features of a typical
credit card, where you can revolve 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.
If you were to look at a credit report that included multiple NPSL cards from
different card issuers, you might see that some cards are reported with credit
limits, others aren't. Some might include the highest balance (typically the
most you've ever charged on that card), others might not. Some might report
neither a credit limit, nor a highest balance. Some could report the account
type of a NPSL card as revolving (credit cards), while some could show
them as open credit lines (charge cards). And not to be outdone, there
are even indications that a credit card issuer may report one way one month and
differently the next!
You may already be wondering how a "no preset spending limit" card can have a
"limit." Sound like a contradiction? Well, it is. Well, sort of.
While some issuers of these NPSL cards claim they don't have a "credit
limit," there is, in fact, a designated dollar amount: 1) below which you can
revolve or pay off each month, just like a credit card; and 2) above which
you're allowed to charge as much as you'd like, as long as you bring the balance
down below that designated dollar amount within the next billing cycle.
Why don't some lenders report limits or balances on NPSL cards? The
compliance lawyers for some card issuers tell us that these cards truly have no
credit limit and that reporting a credit limit would be against their contracts
with their card holders. They also state that reporting a highest balance as a
proxy for a credit limit, which is typically done for credit cards when the
credit limit is missing, would misrepresent the credit utilization for that
account – and for that reason the highest balance is also not reported.
Why do the credit limit, highest balance and account type matter to the FICO
scoring formula? The answer is credit
utilization, which makes up almost 30% of your FICO score.
First, it's helpful to understand that the FICO formula looks at your credit
utilization in two ways: each revolving card's utilization percentage and the
overall percentage comprising all revolving balances and limits. As part of the
credit utilization calculations for a single credit card, the card
balance is divided by the credit limit to arrive at a credit utilization
percentage. To determine the overall credit utilization percentage for
all of your cards, the total balances are divided by the total credit limits.
For both types of calculations – single and overall – if no credit limit is
present, again the highest balance is generally used as a proxy for the missing
What if neither the credit limit nor the highest balance is reported for a
card? In these cases, the formula excludes the card entirely from all credit
utilization calculations and calculates the total credit utilization percentage
using your other cards that include either a credit limit or highest
Now that we've covered how the absence of credit limits and highest balances
impact credit utilization, let's take a look at the differences in scoring
between revolving and open account types. This one is pretty straightforward, as
the most recent FICO scoring models include revolving accounts in
credit utilization calculations, but exclude open type accounts.
Is your head hurting now along with mine? How about we check in on what some
of the holders of these NPSL cards have to say?
FICO Forums discussion, we heard from a Forums member who has three NPSL
cards – the only cards she has – and is wondering how they will impact her FICO
score. In another
discussion, we're told how the credit limit and highest balance appear
differently from credit bureau to credit bureau for the same NPSL card.
To really zero in on this question of how differences in reporting impact
FICO scores, let's consider a few different scenarios to see what can happen to
your credit utilization percentage when these differences occur.
For NPSL accounts reporting as revolving, we'll look at an NPSL account
having a credit limit of $10,000, a highest balance of $1,000 and a current
balance of $500 – with the $500 current balance being the one thing reported
consistently in all examples:
When both credit limit and highest balance are reported: utilization = 5%
When credit limit is not reported and highest balance is reported:
utilization = 50% ($500/$1000)
When neither credit limit nor highest balance are reported = account
excluded from utilization
As you can see, such variations in reporting can easily result in a wide
range of utilization percentages – 5% to 50% or higher – which can result in a
wide range of FICO scores across the three bureaus for the same person with the
same cards. Again, cards reported with the "open" account type are excluded from
utilization calculations, and thus have no impact – good or bad – on the most
recent versions of the FICO score.
What to do if you have a NPSL card and want to make sure it's helping more
than hurting your FICO score?
Always pay your bills on time! While a no-brainer of sorts, be aware that
your repayment history on credit obligations is the biggest single factor in
your FICO score at about 35%.
Monitor your credit reports regularly to ensure your NPSL cards – and all
credit accounts – are reporting correctly. Dispute any inaccuracies by
contacting the card issuer and the credit bureau.
Keep your credit card balances as low as possible on NPSL cards. This way
your credit utilization will be low and your FICO score will benefit no matter
how you slice it.
Oh, and you may also want to keep some aspirin handy.
Author: Barry Paperno serves as community manager for the myFICO Forums
and consumer operations manager for FICO, where he has advised consumers and
businesses on FICO credit scoring since 1995.
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myFICO is the consumer division of FICO. Since its introduction 20 years ago, the FICO® Score has become a global standard for measuring credit risk in the banking, mortgage, credit card, auto and retail industries. 90 of the top 100 largest U.S. financial institutions use the FICO Score to make consumer credit decisions.