Are No Limit Cards Ever A Good Idea?
Back in the olden days of credit cards, American Express ruled the roost. American Express was an interesting idea all those years ago: a simple plastic card that had a long number on it that you used to buy things. You could use it as much as you wanted, there was no credit limit, but the catch was you had to pay it off completely every month. American Express attached a handy interest charge and that was that. You paid it off and it sat there in your wallet waiting to be used again the next month. These days, American Express still operates like this but it is now in the overwhelming minority. Most people are so much more use to cards like Visa or Discover that come not only with a set credit limit but also with the ability to carry a balance from month to month that the American Express way of doing things sound downright funny. Even American Express has the Optima card now that works like a “regular†card instead of their original green card we all know and love. So, are no-limit cards ever a good idea for you and your credit? It depends on several factors.
First and foremost, it is all about self control. It is human nature, when we get a credit card for the first time, to go out and break it in a little. We’ll go out and splurge on a day at the mall or at the sporting goods store, but it is a splurge within reason. We know we have limits and we have to stay with in them. But when you have a no-limit card, those restrictions are gone. The only thing we have is our own common sense to stop us from going crazy. These days, there are still no-limit cards like American Express where you are required to pay off the entire balance every month and no limit cards like Visa and MasterCard where you are allowed to carry a balance. Either way, you have to be able to work within your own budget if you have one of these cards. If you honestly do not think you will be able to control yourself with this much spending power, stick with the conventional style of card from here on out.
Another reason why investing in a no-limit card might be a bad idea is based on the way the various credit bureaus figure out your credit score. Thirty percent of your credit score is figured with a formula that calculates the total amount of credit you have available to you and subtracts the total amount of your credit that you have used. The smaller that number is, the better off your credit score will be. But if you have signed up for a no-limit card, the credit bureaus cannot make this calculation since you don’t have a physical cap on the amount of credit that has been awarded to you. So this calculation can’t be made, and the remaining 70 percent of your credit score counts for 100 percent of your score. If that part of your credit score is not as healthy as it could be, you could see your overall credit score plummet seemingly overnight.
Choosing the right card for you should be a careful and thoughtful decision. If you have the option of choosing a no-limit card, you need to take extra care that you make the right choice for you.