November 10th, 2011

Can Credit Card Limits Hurt Your Credit Score?

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credit limits

One topic that continues to pop up in our Credit Advice Center has to do with credit limits and why some credit cards don’t report limits to the credit bureaus.

Credit Karma’s new Notifications and My Accounts features are giving consumers a deeper look than ever into their credit report details. We wanted to explore the topic of credit limits even more and how they can affect your credit score.

What is a credit limit?

Your credit limit is set by your credit card issuer and is the amount you can charge on a given credit card. Your credit limit is determined by a combination of factors, the two most notable being your credit score and your income. To find out more about how these two factors work to set your credit limit, check out this video.

Why are credit limits important?

One of the biggest factors in your credit score is your credit utilization rate, which has everything to do with your credit limits. Your utilization rate is calculated by adding your available credit limits and dividing that by the amount of credit you’re using at any given point (your credit balances). A healthy utilization rate is typically under 30 percent.

Do all credit cards report a limit?

The short answer is no, not all credit cards report a limit to the credit bureaus. Many charge cards have a feature called No Preset Spending Limit (NPSL). Although an NPSL card actually does have a credit limit, it is not revealed to the cardholder, since the appearance of having unlimited credit is seen as a special perk.

Charge cards don’t report a credit limit to the credit bureaus, and some report your highest recent balance as your credit limit. But all charge cards do report your credit balances, meaning your credit utilization rate will be inflated.

How can you find out if your cards are reporting limits?

First of all, determine whether or not all of your cards are reporting limits. Go to the My Accounts section of CreditKarma.com. Select Credit Cards and compare the number of cards listed in your “Total Credit Card Balances” to the number listed under “Credit Card Limits.”

In the two screenshots below, you can see that this individual has current balances on two credit cards, while only one credit card is reporting a limit.

credit card balances

credit card limits

Due to the unreported limit, this consumer has a credit card utilization rate of 155%. When we view his Credit Report Card, we can see that he has $587 in debt on credit cards that don’t report limits. His extremely high credit card utilization is a large contributing factor to his overall poor credit score of 558.

credit utilization

What can you do?

If you find yourself in a similar situation, contact your credit card issuer to request that a high balance be reported on a credit card currently not reporting a limit. However, your creditor may not be able to guarantee that it will always be reported that way each month.

Additionally, if you have a credit card that doesn’t report a limit, and it’s just one of two or three credit cards in your credit profile, consider getting another one with a set credit limit. Find the best credit card for you and your credit profile by researching on Credit Karma.

Have a Karmic day,

Bethy Hardeman, Social Media Maven

6 Comments

  1. There is a report on my account of 2 cc’s from Macy’s. I do not have any cards from this retailer. I have never had cards from them.

    RITA GRAY at 11:46 am on February 16, 2013
  2. If there’s something fishy with your Credit Karma account, it should alert you that there might be a mistake on your TransUnion credit report – that’s where all of the credit info on Credit Karma comes from. Check your full TransUnion credit report at AnnualCreditReport.com.

    bethy at 11:14 am on February 18, 2013

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