Credit utilization is one of the big factors that credit scoring models look at. Credit utilization is calculated by your current balance versus how much percent of your available credit or credit line was used. The higher the percent of your credit line you spend, the higher your credit utilization will be, and the more it will affect your credit score.
But when it comes to no preset limit cards*, like the card_name and card_name credit cards, there’s a problem in that these cards don’t have a preset credit limit. So the question that we will discuss in this post is: How does Fico calculate credit utilization in regards to no preset limit cards?
The old method
In the past, Fico would use the highest balance within the last 24 months as the credit limit. Based on that amount, they would calculate the credit utilization. For example, if the highest balance you had on a charge card was $10,000 and in the last month you spent $5,000 on that charge card, then your credit utilization would be 50%.
The problem was that if someone had the same spending pattern every month, then his credit utilization would always be maxed out or close to maxed out and his credit would be killed.
The new method
With newer Fico scoring models, charge card/no-preset limit card balances no longer get factored into credit utilization calculations. This means that having a high balance on a charge card does not affect your credit utilization.
The high balance can still affect your general utilization
Even with the newer Fico scoring models that don’t count charge card balances for the card-specific utilization, the balance can still affect your overall utilization (counted from all your credit cards and credit limits together). So having a high balance on a charge card will still hurt your credit score even with the newer fico scoring models.
Mortgage loans still use the old Fico model
It is important to know that even if Fico changed the way they calculate charge card utilization on their new models, unfortunately, when it comes to mortgages, the old Fico versions are still being used. Therefore, at the time when applying for a mortgage be careful when using a personal charge card (not a business) especially if your spending pattern is the same, month after month (as explained above).
Which credit cards are no preset limit cards
At this time, American Express is the only major credit issuer for personal no preset limit cards* .
The following personal credit cards have no preset limit*:
- card_name
- card_name
- card_name ( including the co-branded Platinum credit cards: Mercedes Benz, Morgan Stanley Amex Platinum, The American Express Platinum Card for Schwab, etc.)
*No Preset Spending Limit means the spending limit is flexible. [In fact,] unlike a traditional [credit] card with a set limit, the amount you can spend adapts based on factors such as your purchase, payment, and credit history
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When amex is assigning a limit on a no preset limit card, will it report as a regular card with a limit?