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No Limit Credit Cards Hurt Score
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Do you have a no-limit credit card? If you do, it actually might be hurting your credit score because of the way your credit card company is reporting your credit limit on that card. That’s important because one component of your score is “credit utilization,” or, how much of your total limit you’re currently using. On no-limit credit cards, the company might be reporting the largest balance you’ve ever carried on that card and so your credit utilization could be incorrectly inflated. What’s even worse is that some companies don’t even report any limit for that card, which is bad (you have a credit card with a credit limit of $0??? wouldn’t you start asking questions?).
There are two solutions that Bankrate suggests. If the company does report the high balance, rack up a lot of charges, pay them off with the next bill, and now you have a large reported limit and that should improve your score by lowering your utilization. If they don’t report anything, close the card because otherwise you’re hurting your score.
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Capital One is notorious for this. I have heard reports of company officers dismissing its importance.
Wow – I would have never known this. There should be some kind of disclaimer!
I totally agree that you should have to sign or intial that you understand what this type of card can do to your FICO score! We worked for years to get a credit score of 750 – only to have it fall almost 50 points after getting an American Express Gold card for my husband to use for business and to get the reward points. The points will never make up for the additional interest we will now have to pay on a vehicle we just purchased and refinancing the house will be out of the question until we can resolve this issue.