A recent study conducted by CardHub.com unearthed rather disturbing information about the ways in which credit card companies report their No Preset Spending Limit (NPSL) cards to the major credit bureaus and how regulation for these products is conspicuously lacking.
According to this No Preset Spending Limit Card Study, issuer reporting does not exhibit uniformity or consistency and provides credit bureaus with a distorted sense of consumer credit usage that often results in users incurring credit score damage.
Credit card companies can report whatever they want for their NPSL cards and can change their reporting methods at will without notifying customers. This fact is particularly troubling because such unrestricted reporting freedom allows issuers to perpetuate and profit off a commonly-held, yet false consumer belief.
NPSL products like the Visa Signature credit card, the World MasterCard credit card and charge cards from Chase and American Express are so popular because many consumers believe that “No Preset Spending Limit” means spending with them is limitless.
This, however, is untrue, as every NPSL card has a spending limit. Still, because it makes their products more attractive, NPSL card issuers play into this myth by being uniformly secretive. They do not inform users of their credit lines and they either report proxy credit limits or nothing at all to the credit bureaus. The exact manner in which credit card companies report to credit bureaus varies by issuer and is often difficult to determine.
This creates significant consumer risk because one’s available credit dictates his or her credit utilization, which, if high, can in turn negatively affect one’s credit score. Having a credit limit reported as being lower than it truly is results in deceptively high utilization, as does the failure to report a card’s credit line because it is therefore not included in a consumer’s available credit total.
The way in which NPSL cards are reported to the credit bureaus speaks to a much more comprehensive issue, however. Consumers are often unaware of the exact information that is reported to the credit bureaus about their credit usage, and lenders can freely change what information they choose to provide without notifying their customers, even if such a change may hurt their credit standing. This makes it difficult for people to use credit in the most responsible ways possible.
A unique opportunity therefore exists for credit card companies to come together and develop reporting guidelines that require greater transparency and completeness of information before the negative effects of the current system spiral out of control and regulators and politicians are forced to step in, much like they did in passing the CARD Act and strengthening consumer credit card rights.
This article was written by Odysseas Papadimitriou, CEO and Founder of CardHub.com, a website that helps consumers compare credit cards and gift cards.