What if a credit card doesn't report my credit limit?November 21, 2011: 5:05 AM ET
Unlike my other credit cards, the Visa Signature Cash Rewards credit card doesn't report my credit limit to the three credit reporting bureaus. I believe this negatively impacts one's credit utilization ratio and, hence, reduces my FICO score. Am I in error? And, if not, will switching to another card hurt my FICO score? –Ken W., N.C.
First of all, kudos to you for regularly checking on your credit reports from the three bureaus (Equifax, Experian, and TransUnion). Not enough people do this on a regular basis, despite being entitled to one free report per year from each bureau via annualcreditreport.com.
Visa Signature cards offer an interesting "perk"—no pre-set spending limit. But that doesn't mean you have no credit limit at all, says Lee Mokri, a spokesman for Visa.
"These types of cards have what's commonly referred to as a 'shadow limit,' an actual spending limit that isn't ever published," explains John Ulzheimer, president of consumer education at SmartCredit.com. "You can't just go out and swipe your card at the Porsche dealership and drive away with a new car."
So how does all of this show up on your credit report? It depends. "What exactly gets reported to the credit bureaus is at the issuer's discretion," Mokri says. In other words, one bank may report credit limits on its customers' Visa Signature cards, another may not. Obviously, yours doesn't.
The fact that the credit limit isn't reported won't necessarily ding your credit score. As you noted, the score takes into account your credit utilization ratio, which is the percentage of available credit that you're currently using. To calculate this on a card without a reported limit, "FICO will use the highest historical balance in lieu of the credit limit," Ulzheimer says. So if the biggest balance you've had is close to your limit, your score shouldn't be affected. If, however, your highest balance is low relative to your actual limit, this would raise your utilization ratio and possibly lower your score.
Should your highest balance be well below the actual limit, you might consider using an existing credit card with a higher credit limit instead. You'll boost your score slightly, because although your overall credit utilization ratio will remain the same, the credit utilization ratio on each card individually will be smaller. As for opening a new card, it probably won't make much of a difference initially—the new card will help your utilization ratio, but applying for it will reduce your score slightly. Over time, your score will climb higher, but it could take a while.
Whatever you do, don't close the Signature card. "I would just shred it and leave it open," Ulzheimer says. "You'll still get some value out of having a zero balance on that credit card."
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