No Credit Limit-No Credit Score?

A credit card with no credit limit seems to be the dream of every card holder. It feels so good to buy whatever you want and just overlook prices. Unlimited credit card freedom attracts a lot. Like in the Nickelback’s song “I need a credit card that’s got no limit and a big black jet with a bedroom in it…” Well, maybe having a black jet with a bedroom inside is really a prerogative of big rock stars, but getting a no-limit credit card is available to ordinary people with good credit.


But even if you are sure that you can afford having a no-limit plastic, I mean, you feel confident about your income, do not rush to apply for it. Have you thought how such a credit card can damage your credit score?

So, how can a credit card with no limit affect your credit score? “Credit utilization” is one of the basic components that make up your credit score. To be more exact, it is about 30% of your credit score. Credit utilization is the ratio of your actual debt to your potential debt. So, if you have a credit limit of $ 10,000 and a balance of $ 5,000, the credit utilization equals to 50%. The lower this percentage is, the higher your credit score rises.

When a card comes with no limit, credit reporting agencies cannot calculate this ratio. Here how it is reflected in your credit report. It looks like you have no credit limit and using all of your available credit. This makes your credit utilization amount to 100%, which causes your credit score drop.

But here is the way out offered by credit card companies. Most of them allow the credit bureaus to take the highest balance for a credit limit in order to calculate the credit utilization ratio. This is really a good idea. Besides, you can improve your credit score this way. You need to pay off your monthly balance in full. This will reduce your credit utilization ratio and make your credit score go up.

But if only everything was so simple! Alas! Unfortunately, not all credit card companies report the highest balance. In this case not only your credit limit is reported as 0, but your highest balance is also reported as if it does not exist (as $0). This situation is much more complicated. In this case you have 2 options. You can either contact your creditor and ask them to report your balance, or just close the account. But in practice, even if your credit company agrees to report your balance, you do not get a guarantee that they will do it accurately month to month.