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Ask Creditnet: What No Pre-set Spending Limit Really Means

Amex Credit Cards

Dear Creditnet: I get credit card offers in the mail all the time that say they have no pre-set spending limits. Does this mean that if I'm approved for one of these cards I can charge as much as I want?

I run a small business out of my home and have had trouble getting a credit card with a high enough limit to cover my monthly expenses, so a card with no pre-set spending limit sounds like it could be the perfect fit. - Rebecca from NC

Answer: You won't be able to charge as much as you want from day one. That's not how these cards work.

In fact, the term "no pre-set spending limit" can actually be quite misleading because your credit card would have a limit on how much you could spend. The difference is that the amount isn't predetermined like it would be with a regular credit card which states a credit limit along with your approval.

What your credit card issuer will do is consistently analyze your information such as payment history, spending habits, and your relationship with the credit card company to determine what your spending limit should be. Then, when you make a purchase, they will decide if that purchase should be approved or not. Theoretically, there is no maximum on your spending limit, but it's important to realize that it could take quite a long time to build your relationship up to a point that is acceptable to you.

For example, you may have no predetermined credit limit, but if you tried to make a $5,000 business purchase on a relatively new card that has never been used for more than a few small purchases, it's probably going to be denied because the charge doesn't fit within your normal spending pattern. Or, if you're already carrying a significant balance and the credit card company denies a new charge, they may require that you pay down your existing balance before the new charge will be approved.

Regardless, a rewards credit card with no pre-set spending limit could still be a good option for your home-based business. If you use the card wisely and always pay your balances in full and on time, your spending limit could certainly grow over time to a point that accommodates all your business needs. Photo by Andres Rueda

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Joshua Heckathorn is a credit expert and has been featured on CNNMoney, FOX Business, Yahoo Finance, The Street, and many other national publications during the past twenty years.  He received a Bachelor of Science in Management (Finance) from Brigham Young University's Marriott School of Business and earned his MBA from Seattle University.

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