Scoring of "no preset limit" credit cards

[hdporter]

I've never seen a good explanation of how inclusion of "no preset limit" on your credit report impacts your credit score ... specifically when it comes to the credit utilization factor. Many of these cards have a credit line assigned, but not a limit. You're allowed to charge in excess of the assigned line -- but must pay it back down below the line before the next billing statement. Consequently, the issuers don't consider these to have a fixed limit and often don't report a limit to the CRA's. The only thing that is recorded is historical high balance. In the case of standard revolving credit cards with a limit, it's commonly discussed that failure of the issuer to report a limit can impair your score because utilization is otherwise calculated using the high balance, which often is lower than the actual limit. It would be expected that when a "no preset limit" card is reported as type "Revolving", failure to report a limit would have a similar impact on scoring. However, I've seen these cards reported with a type of "Open" or "Flexible Spending". Are these scored similarly? Or, because they're being specifically disclosed as having different terms re limits, are these excuded from the utilization factor? ... in this latter case, presumably charging the card up to 90% of the unstated line would have no different impact than 10%, no matter what the reported historical high balance. (As a side note, I've seen utility accounts reported as account type "Open" - not to be confused with having an Open vs. closed status - and there's little doubt that these aren't factored as part of the utilization component of scoring. Finally, some issuers will update the CRA tradeline to report a limit upon your request. Assuming that the card is still reflected as type "Open", does this change how the account is scored (particularly if, as may be the case in the last example, the card should otherwise excluded from utilization scoring)? Accurate information would allay much of the concern of some who fear that these types of accounts are likely to penalize their credit score.

[TheNewWorldMan]

These "no limit" cards are a pain in the rear when it comes to utilization...CapitalOne is one such card. From what I understand, this is the workaround to use:

1. Charge a high balance...now be sure to leave yourself some headroom for finance charges and the like. Most cards DO have a limit, even if this is not reported to the credit bureaus...be sure you don't exceed yours.

2. Wait for this balance to be reported to the CRAs. This will then become the maximum balance, which for utilization functions as a limit. Nota bene: your FICO will take a temporary hit, because for that reporting cycle, your utilization on that line of credit will be 100%.

3. Immediately pay down the card balance to $30 or so. This will be just enough to get a monthly bill, and we all know how credit bureaus love to see you pay your bills on time.

4. Your utilization will then drop to a small fraction...if the high-water mark you set in Step 2 is, say, $989, your utilization would be around 3-5%. Your credit report will then indicate you have a balance of $40 on a credit card with a $989 limit. Your FICO should rebound, probably to a bit higher than it was before, since your credit report will reflect you have more credit, and a lower utilization percentage on that account than before.

Message Edited by TheNewWorldMan on 03-30-2007 11:03 AM

Message Edited by TheNewWorldMan on 03-30-2007 11:03 AM

[Anonymous]

Cards that report as open (e.g. amex charge products) or flexible spending/no preset limit (e.g. visa signature) generally don't get counted as far as your utilization.

There is a work around for cards that report as revolving accounts but don't show a limit (e.g. cap1) posted above, but this generally is only applicable to revolving accounts.

[Anonymous]

Yes, the Visa signature cards and the World cards that don't report limits are also something of a pain. I have one of each, plus a Cap1 card.

That's, hrm, 47% of my credit limits not reporting.

[hdporter]

quote: "Cards that report as open (e.g. amex charge products) or flexible spending/no preset limit (e.g. visa signature) generally don't get counted as far as your utilization."

I have strongly suspected this. However, if you would share, I'd appreciate the basis from which you've made this statement. I haven't been able to find anything myself from the various credit forums or FICO as verification. Thanks.

[Anonymous]

"I have strongly suspected this. However, if you would share, I'd appreciate the basis from which you've made this statement. I haven't been able to find anything myself from the various credit forums or FICO as verification. Thanks"

Just look at your report and calculate the utilization by hand, ignoring those accounts. Then compare the number with what it says your utilization is under the positive/negative factors (e.g. "The proportion of balances to credit limits (high credit) on your revolving accounts is x%. The average..." ). You should be able to see this number match your own calculation, perhpas after a little tweaking of what you count and what you don't. Additionally you can find similar stories on other financial forums.

Message Edited by okrogius on 03-30-2007 11:15 PM

[Anonymous]

Well Hiya High Def  Getting crowded over here

[Anonymous]

I just did an analysis of my TU FICO because it said my util was at 60% (eek!).

1) Amex One is not being figured into revolving.
2) My Citi world MC is. It's newly reporting, so it's reporting at 100%.
3) Chase Sig Visa: Not yet reporting on TU, please hold.

A couple of my paid-off open tradelines are missing (as are nearly all my closed ones), so that's why the util spike. Real util is 44.9%.