Opting Out of Credit Card Upgrades May Only Be Temporary

This is a guest post by Michael from CreditCardForum.com, a message board and blog for the discussion of credit card deals, as well as a place to talk about the drawbacks that come with the use credit cards. In today’s post, he will be talking about one of those drawbacks.

Last week, Simon wrote about how Citi tried to automatically “upgrade” him to a World MasterCard – a credit card that has no pre-set spending limit. I actually have the Citi Dividend Platinum Select card myself but I am lucky that they haven’t tried to change my card, yet .

However I have faced this same problem with Bank of America forcing my current card to become a Visa Signature card (which is Visa’s version of the World Mastercard – so no pre-set spending limit as well). But before I tell you that story, let’s discuss the basics about these cards…

Why all the hate for World MasterCard/Visa Signature?
These cards are marketed as a high “premium” tier for the aforementioned card issuers. They offer added benefits like free phone concierge, extra travel insurance, purchase protection, and more. All that without an annual fee! So why all the hate?

Well unfortunately, these cards have on drawback – they do not have a set credit limit. Part of your credit score is based on credit utilization (the percentage of your available credit that is used). You don’t want this number too high. According to many talking heads in the finance world, the general recommendation is to not use more than 30% of your credit limit on an account.

On many accounts from current cardholders, the highest monthly balance on these “no pre-set spending limit cards” are reported to credit bureaus as the credit limit. As you can imagine, this may not be to your benefit because it would hurt your credit score.

You may have had a $20,000 limit on your original account but you could have a reported credit limit of $2,000 if that was your highest monthly balance.

Which would you rather have shown as your credit limit? Obviously the $20,000!

Why was there no opt-out option for my Bank of America credit card?
Back in 2004, I switched my checking account to Bank of America. During the process, they also offered me one of those credit card deals where they give you a free $100 bonus if you also open a credit card. I took the bait.

I’ve used that card periodically over the years and had built up a very nice credit limit on it. Then in May, I got a notice in the mail that my specific type of card was being discontinued in August and would be replaced with a BankAmericard Cash Rewards Visa Signature card. I called up and vehemently made clear I did NOT want my new card to be a Visa Signature, instead I wanted it the tier below (Platinum Plus). The CSR said that was not a problem and confirmed the replacement card coming in August would indeed be a Platinum Plus.

Well it’s now August and I got the card in the mail and guess what… it was a Visa Signature. Furious, I called up customer service as I was sure they must have forgotten to fulfill my request. As it turns out, the CSR in May did opt me out of the Signature version. But guess what happened? They decided to re-evaluate my account again on August 1st and made the decision to issue me a Signature without my approval.

Why the no preset limit cards are going to become more common
After talking with someone I know at the bank, it turns out that even if you opt-out of these “upgrades” they might upgrade you again a few months later, without your consent! So basically, these “opt outs” are only temporary, because when they re-evaluate your account again (possibly every few months) they might just try and do the upgrade again.

The reason these banks love these no pre-set limit cards is because it limits their liability.

If you have $20,000 of available credit that’s a $20,000 liability for the bank. But if you have a no pre-set spending limit card, your purchases are approved (or declined) on a case-by-case basis. So, they no longer have to record your account as that $20,000 liability. Instead, they can just cut off your spending whenever they want.

With the shaky economy we’re in today, you can bet that banks will be utilizing this technique more and more to limit their risk.

If you want a set credit limit, what should you do?
As mentioned, for some people the benefits offered on these cards may be a worthwhile deal (I actually have one myself, the Chase Freedom). However, I wouldn’t recommend having more than one of them due to the credit limit predicament discussed above.

If don’t want them, respond to these notices right away and opt out, but even then, there are situations where it’s not a guarantee (like what happened to me, where my card was discontinued). Also, realize that some issuers may try multiple times a year to upgrade your account – so be diligent and pay attention to all the notices they send you.

Simon’s Note: Some people have been able to transfer their credit card limits to a different card under the same issuer. Because the bank may have a goal to convert a select group of cardholders, moving your account to a different card may be a viable option to keeping your credit limit out of the line-of-fire. You may lose some of the perks of the original card though…

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