What Does No Pre-set Spending Limit Mean For My Credit Score?

So, I recently got a letter in the mail regarding my Citi Dividend Platinum Select Card. Supposedly, I’m such a valuable cardmember that I’m being “upgraded” to the Citi Dividend World Mastercard.

Among some new perks such as price protection, concierge service, and PayPass, the most worrisome addition is that the card has no pre-set spending limit.

What is “no pre-set spending limit”?
According to Citi, it means:

You can make purchases beyond your revolving credit limit, as long as the amount exceeding your revolving credit limit is paid in full each month. The ability to make purchases beyond your existing revolving credit limit is based on cardmember account performance, payment history, credit record and ability to pay the maximum account balance.

So, there is a credit limit but I’m allowed to go over it if my credibility is good. It sounds great but the negative side to this slight convenience is how this line of credit is reported to credit bureaus.

The Negative Effect on My Credit Score
The buzz from the personal finance community is that “no pre-set spending limit” cards can prove to be detrimental to credit scores. While credit card issuers may be more lenient to my spending, they do not actually report the card’s credit limit like the typical credit card.

Instead, Citi will report my highest balance as my credit limit. If I have no balance, that means this credit card account is considered to have a credit limit of $0. So, my current credit limit of $10,000 will no longer exist to the three credit bureaus.

This comes as a drastic change to the way my debt utilization ratio is calculated and that ratio represents a substantial part of every person’s credit score calculations.

• With a $10,000 limit, a $100 balance results in a debt utilization ratio of 10% – cheers to a great credit score.
• With no pre-set spending limit, my $100 balance would mean a $100 reported limit that results in 100% debt utilization – credit score goes to hell.

Staying Out of Harm’s Way
While I do have another credit card for use, my Citi card was my first line of revolving credit with a substantial limit and I’d like to keep it that way. The best way to not let this affect my credit is to opt out of this upgrade (hope I don’t have to close my credit card if I can’t).

(Photo credit: xJasonRogersx)

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