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Credit cards with no preset spending limit offer flexible spending limits that adjust based on your creditworthiness, financial history and other factors. This flexibility allows you to access increased buying power without having to request a credit limit increase. Understanding how a no preset spending limit credit card works can help you determine whether it's a good fit for you.
How No Preset Spending Limit Credit Cards Work
With a no preset spending limit credit card, you don't have a set credit limit as you do with a traditional credit card. However, that doesn't mean you have unlimited spending capacity. Instead, your spending limit adjusts periodically based on your purchase, payment and credit history.
The more you spend, the more your card issuer will let you spend, presuming you have strong payment patterns. You can raise your spending limit by using your credit card regularly and paying off most or all your balance each month. Since your total credit history matters, make sure you're paying all your accounts on time, even those you have with other credit card issuers.
If you have questions about your current spending limit, you may be able to check your limit online or through your card issuer's mobile app. Calling customer service is also an option for checking your spending limit. This could be helpful if you're preparing for a large purchase and want to be sure it will be approved.
Pros of No Preset Spending Limit Credit Cards
There are several advantages of using a no spending limit credit card.
Lucrative Rewards
No preset spending limit credit cards often come with lucrative rewards programs where you earn cash back, points or miles on each purchase. For instance, rewards on bonus categories may offer a higher spend cap compared to traditional credit cards, maximizing your potential rewards earnings. You may also have access to benefits like dining, food delivery, travel or entertainment credits to offset your purchases in these categories.
Flexibility for Large Purchases
With a no preset spending limit credit card, you can enjoy the flexibility to make larger purchases. This can be helpful for covering unexpected emergency expenses or large purchases. Since your spending limit is based on your financial activity, you'll need a strong financial standing to make expensive charges, so it's unlikely you'll have enough bandwidth for large purchases early on in your relationship with a card issuer.
Spending Doesn't Affect Your Credit Score
Unlike traditional credit cards, where high balances can raise your credit utilization and hurt your credit score, no preset spending limit credit cards operate differently. Because there's no fixed credit limit, credit utilization can't be calculated the same way. If you have a large purchase coming up, using a credit card without a preset spending limit can protect your credit score.
Cons of No Preset Spending Limit Credit Cards
There are also some disadvantages of no preset spending limit credit cards.
Annual Fees
Many no preset spending limit credit cards come with an annual fee, adding to the cost of card ownership. Weighing the rewards and benefits against the annual fee is essential to justify the expense.
Risk of Overspending
Without a fixed credit limit to restrain your spending, there's a greater risk of spending more than you can afford and accumulating debt. Using your credit card responsibly is key to avoid falling into a debt trap, even when your card issuer offers the potential for increased spending. You may have to keep a closer eye on your balance to avoid overspending.
Less Flexibility to Carry a Balance
Many no preset spending limit credit cards for consumers are charge cards, requiring you to pay your full balance each month. While some may offer a pay-over-time feature, using the feature may involve extra fees or interest. The amount you can pay over time may have a limit, similar to the credit limit on a traditional credit card.
Excellent Credit Required
Access to no preset spending limit credit cards is generally reserved for people with excellent credit scores. Without a history of responsible credit card use, you may not qualify.
Is a No Spending Limit Credit Card Right for You?
A no preset spending limit credit card may be good for you if you frequently have large expenses. It's important to consider some factors before applying. Most cards require you to pay your balance in full each month, though some offer a pay-over-time feature. Even if you're allowed to carry a balance, paying in full is ideal. Interest charges may get expensive if you're carrying a high balance.
You typically need to have excellent credit to qualify for a no preset spending limit credit card. Before applying, you can check to see if you're prequalified to estimate the likelihood that you'll be approved. This will help you make a decision about whether a no preset spending limit card is right for you.
The Bottom Line
No preset spending limit credit cards offer more buying power and carry less risk of hurting your credit score when you make large purchases. While they carry several benefits, they're not for everyone. There's an increased risk of getting into debt and you typically need to have excellent credit to qualify. That said, if the increased flexibility of a no preset spending limit credit card sounds like what you need, you can check your free credit score to see where you stand and gauge your approval odds before applying.