Credit limits are assigned to some credit cards. Any cardholder who is approved for that credit card will be approved for that credit limit. Alternatively, based on the cardholders' prior credit history, the credit card company may set a credit limit for them. In either case, your credit limit at the time you apply for your credit card may end up remaining the same for the entire time your card is active. Another type of credit card has no set spending limit. The limit on this card is more flexible, and this feature has its own set of advantages and disadvantages.
What Does "No Fixed Spending Limit" Really Mean?
Some people may believe that "no set spending limit" means that you have unlimited purchasing power with that credit card. That is not correct. Cards with no set spending limits are excellent—but not exceptional. Credit cards that do not have a set spending limit do not have a set credit limit. Instead, the spending limit for each borrower is determined by their income, payment history, the number of credit cards they already have, previous spending patterns, and other financial factors. Because credit card companies do not disclose their exact methods for calculating cardholders' spending limits, it is difficult to predict your spending limit. One of the disadvantages of having a credit card without a set spending limit is that you never really know how much you can spend on the card. You can check your balance and available credit on a credit card with a set credit limit to see if you can make a purchase. You don't have the same flexibility with a credit card that doesn't have a set spending limit. Your spending limit will automatically adjust based on your spending and payment patterns on a regular basis, so you won't need to request an increase in credit limits whenever you need more credit. You can frequently have your limit increased upon request. At the discretion of the credit card company, you may be permitted to exceed your spending limit on occasion. You may also be denied for a purchase that is outside of your normal spending limits, even if your spending limit is sufficient to cover the charge. There is no set spending limit. Credit cards are issued to borrowers with an excellent credit history—those who have demonstrated the ability to use a credit limit responsibly. Charge cards, which demand that you pay off the entire balance each month, are another type of card where they are typical.The Effect of a No Limit Credit Card on Your Credit Score
The aspect of your credit score at issue here is credit utilization—how much of your credit limit is being used. This information constitutes a significant portion of your credit score, so it is critical that you pay attention to it. However, contrary to popular belief, credit cards without a set spending limit will have a negative impact on your credit score. This is dependent on how your credit card issuer reports the limit to the credit bureau.