No-limit credit cards can damage your credit score

Beware of no-limit credit cards. Despite the prestige and flexibility these cards offer, it’s possible the cards could result in a lower credit score. It seems odd, but someone who has the track record and wealth to qualify for such cards, and manages their credit well, could still get burned. It’s because part of your credit score is determined by the gap between the credit limit on your cards and how much you pay off (the credit utilization). The no-limit credit card company has to report something as the limit to the credit bureaus. If it reports some arbitrary “limit” to the credit bureaus which is low, and you are a big spender, they could be screwing you over. Because the gap between your limit and your balance could be very small.

What should the credit card companies use as the “credit limit” necessary to determine this gap? Probably the most customer friendly thing to do is report your highest-ever balance as your limit. But they don’t all do that as this article below describes. Also, the article I believe has a small error. It says that “Credit utilization accounts for 30 percent of your credit score.” Not entirely true. 30% of your credit score is determined by your indebtedness, of which credit utilization is ONE factor. Other factors which effect that 30% include money owed on all accounts, quantity of credit accounts, and how much your mortgage/installment loans are paid off.

Read more from Bankrate.com via MSN Money.

"Consumers who are thinking of opening one of these no-limit credit cards may want to think how deeply their scores will be affected," says Craig Watts, spokesman for Fair Isaac, the corporation that developed the well-known FICO score.