Everyday from August 10th through the 16th we will be talking about credit cards. Read all seven posts for a basic understanding of earning miles and points with credit cards.
You probably already have several of these cards in your portfolio and don’t even realize it. Here is the problem…
You are sold on the idea that if you are near your credit limit and you make a purchase that would send you over what you were approved for (notice I did not say credit limit), your purchase will be approved and an embarrassing moment may be avoided. That is a no preset limit card.
When the statement comes you must pay all the amount over what you were approved for (again, I did not say credit limit) in addition to the minimum monthly payment on the amount you were approved for.
Here is the rub, that negatively effects your credit: The highest amount you have ever had outstanding on the credit card is typically what is reported to the credit bureau as your credit limit, when in reality, it is only the highest amount you ever had outstanding.
Here is a good example; You receive a no preset limit card from Chase Bank for a United Airlines card (double check to be sure this is true) and the first month rack up $2000 on the card. Let’s assume your no preset limit amount is $10,000.
You pay off the card successfully in month #1 and the second month rack up only $1,500 in charges. Here is what the credit report may see:
- Current balance $1,500
- Credit Limit $2,000
It appears to other lenders that you have a credit card with Chase Bank that is approved for a $2,000 credit limit and you are at 75% usage already. It is not true, but that is how it is reflected on your credit report.
If you have balances on your credit cards over 50% of your credit line or credit limit, it is a serious negative on your credit report. Try to never be in over 50% at any one time. Of course on Business cards, which we know don’t reflect on your personal credit report in most cases, you can push that to about 85-90% before you will be negatively effected from my past experience.
If I were in your shoes right now, I’d be calling my credit card companies to see if my credit cards are no preset limit cards. And if they are, ask how you can switch them to cards with real credit limits. And it is always easiest to do this after you have received your sign up bonus
Remember, your credit is a very valuable asset. Do not abuse it.