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Q: I’ve heard a lot about no pre-set spending limits when it comes to credit cards, but what does it really mean?
A: It means that Card Company will not give you an exact dollar figure on how much you can spend; rather, it leaves it up to you to determine how much you can pay back in full each month, because it’s usually this type of card that has no pre-set spending limit. American Express is an example of a card that expects full payment at the end of each month.
Even though you will not have an exact dollar figure, there will actually be a pre-set limit. The card company will base this on your credit history, income, and past card use. If you should go over what they perceive to be your “limit”, you will be notified of this. At that time, you may be told that you cannot use the card again until you have made a payment.
It should be re-iterated again that you will not be given a dollar figure “up front”. So, when you first start using the card, you really won’t have any idea of what your preset limit may be, unless you know you will only be using it for certain things, and you have a pretty good idea of what those things cost each month.
For example, if you use your credit card only to pay for business dining expenses, you probably already have a fairly accurate amount of what your monthly charges may be. Based on this information, you can then “estimate” what you think the company will consider as your preset limit.
When using cards with no pre-set limit, it’s best to start off small, pay that back, and then add more if you feel you are able. This way, you will be able to manage it better.