Card companies are looking for a way to attract new customers and recoup lost revenues since the passage of the CARD Act. One innovative idea is a new pricing structure that has questionable benefits. The perk being plugged is a ‘no limit’ card first introduced by J.P. Morgan Chase. By removing the credit limit and replacing it with what is called a credit access line, cardholders have a more liberal credit card experience without the worry of going over the limit.
While this may be good news for a few consumers, for many it’s a dangerous proposal that may significantly increase spending by eliminating the embarrassment of having a card declined for going over the limit. While it givers cardholders more flexibility, there will be problems for people who associate the amount they are allowed to borrow with the amount they can afford – two completely different things. No matter if there is a spending limit or not, the amount a cardholder borrows needs to fit into their personal budget. If you worry about keeping your spending under control, consider a traditional credit card, instead. Click here to compare offers
Another reason why a no-limit card might be a bad idea is based on the way the various credit bureaus figure out credit scores. Without a limit, credit reporting bureaus cannot do the calculations that determine the ratio of your available credit and the amount you have already spent. Missing this information could negatively impact your credit score and your ability to borrow in the future.
One important point to remember is that credit should never be considered an extension of your income; it is simply a tool to be used for convenience. If you change your mind about a no-limit card, you can opt out of the change by contacting the company in writing to reject the new terms. However, if you choose to use a card with no spending limit, make sure it’s being reported by checking your credit report.