Much Can Go Wrong in Opening a Credit Card for the Wrong Reasons

What makes a credit card or a charge card popular? Rewards, minimal fees and low interest rates sure have something to do with it. Good marketing and a reputation for excellent customer service can play an important role as well. But what about a myth or misinterpretation? Could the promise of a feature not truly offered drive sales and create prominence for an otherwise unspectacular product? It seems unlikely, yet it is indeed the case for credit cards with the No Preset Spending Limit (NPSL) feature.

NPSL cards—like World MasterCard credit cards, Visa Signature credit cards and charge cards from both American Express and Chase—have become some of the most popular credit cards for people with excellent credit because many such consumers mistakenly believe them to provide unrestricted spending capabilities. This myth of limitless spending most likely stems from a combination of the uniform industry policy not to release NPSL card limits and a simple misinterpretation of “No Preset Spending Limit.”

While many consumers effectively ignore the “P” in NPSL, and believe cards with this feature to have “No Spending Limits,” NPSL actually means that a card’s limit is not a static amount, laid out in an original offer. Rather, it is a fluid spending cap that changes from month to month and is based on numerous factors such as spending patterns, payment history and economic trends. The confusion over the meaning of NPSL is only exacerbated by the fact that issuers do not notify their customers about their limits. This not only entrenches the no-limit myth, it also decreases NPSL card limit usability. Since you don’t know how much you can spend at any time with an NPSL card, it’s difficult to effectively budget or plan significant purchases with any certainty.

Additionally, being unaware of your card’s credit limit makes it quite difficult to maintain a low balance-to-credit-limit ratio (i.e. credit utilization), which is extremely important to achieving the best credit score possible as it signals responsibility. According to an NPSL Card Study conducted by, the way issuers report to the major credit bureaus can lead to credit utilization problems as well. The study found that NPSL card issuers report arbitrary credit limits—if anything at all—to the credit bureaus rather than their cards’ true limits. These substitutes can make your credit utilization seem higher than it truly is and can damage your credit standing since credit scoring agencies prominently include utilization in their calculations.

Such effects are largely unpredictable, given that Card Hub’s study also discovered that issuer reporting practices exhibit no uniformity. Similarly, some of the biggest providers of NPSL cards— HSBC, Chase, and U.S. Bank—were found to lack transparency in their reporting practices.

In light of these findings and the risk associated with NPSL card use, consumers should avoid No Preset Spending Limit cards. They should instead open rewards credit cards that meet their lifestyle needs and garner true benefit rather than confusion and uncertainty.

This guest blog is from, a website that helps consumers find the best credit card, charge card, prepaid card, or gift card.

3 Responses to Much Can Go Wrong in Opening a Credit Card for the Wrong Reasons
  1. Barry
    April 23, 2012 | 7:52 am

    Thank you for pointing out these issues, and I agree that transparency is desirable. However, I checked my credit reports and found that my US Bank Signature Visa (NPSL) is reporting a credit limit of $24,000 to the agencies. This gives me a very low utilization and benefits my credit score. If I had a regular account, it would probably have a $10,000 limit. I will not be changing from my NPSL card.

    Check your credit report before taking action that may by unnecessary or even damaging to your score.

    I believe that the Banks benefit by offering NPSL terms because it reduces the federally mandated capital requirement for them (this is a legal technicality that allows them to offer you more credit at a lower cost to the bank). I do not have a problem with that because it has allowed me to to have access to a lot of credit at favorable terms with no annual fees and even a cash-back benefit. This has saved me well over $1,000 in the past 5 years.

    Let’s not overreact to the NPSL trend.

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