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If your credit score is in good shape, you may be eligible for a "No Preset Spending Limit Card" (NPSL). But it's important to understand how credit limits factor into the calculation of your score. So, how does an NPSL card affect your score? It's complex, but Credit.com breaks it down for you.
An NPSL card is similar to any other card, except that it allows you to spend large amounts, and generally, you’re expected to pay the balance in full each month. Credit utilization, which is a major component of your FICO score, refers to the proportion of available credit that you actually use. To achieve a higher score, it’s ideal to keep your credit utilization low. But with no limits on NPSL cards, how does this impact your utilization rate?
According to Credit.com, the effect of an NPSL card on your score can vary, as it depends on the card itself. Typically, an NPSL card appears on your report as a "flexible spending credit card" and often reports a high credit limit to the bureaus. As Bankrate points out, if you read the fine print, these cards do have a limit, but they don’t impose any charges for exceeding it.
Credit.com shares some useful guidelines:
There’s no need to worry about your credit score, as long as the utilization rate on the NPSL and other cards remains low.
If the account is a charge card — rather than a revolving credit card — the NPSL account will be entirely excluded from utilization calculations in the latest FICO scoring models.
Regardless of whether it’s reported as a credit card or a charge card, if there’s no preset credit limit and the credit amount is high, the NPSL card will be omitted from all utilization calculations.
They note that if you have a high credit score and minimal debt, an NPSL card can be beneficial. Otherwise, you might want to consider skipping it. For more details, check out the link below.
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