Focus on the financial world, and it's easy to learn something new every day. Here's what I learned, thanks to a Bankrate.com article by Kristin Arnold: It seems that there are credit cards with no borrowing limits, and that using them can damage your credit rating. Yikes!
Arnold offered this eye-opening example: "Anthony Citrano, a partner in a Cambridge, Mass., public relations firm, opened a Citibank World MasterCard account in November of 2004. Within two months, his credit score dropped 50 points at Experian and 35 points at Equifax."
So what's going on here? Well, the main problem is tied to how credit scores are calculated. One major factor, which makes up nearly a third of your score, is "credit utilization," which measures the percentage of available credit that you owe. If your card's limit is $12,000 and your balance is $4,000, your credit utilization is 33%. (The lower the better, when it comes to credit utilization numbers.) Interestingly, if your card has no limit -- which many card users would consider a good thing -- then the metric can't be calculated, and it isn't there to boost your score. Some card companies are getting around the problem by using your largest recent balance as your limit, but this is an imperfect solution. For one thing, not all card companies are doing this, and for another, the numbers won't always work in your favor. If you're a modest charger with a highest balance of $5,000 and a current balance of $3,500, your credit utilization will be a relatively steep 70%.
Learn more in our Credit Center, which features some surprisingly interesting info about the credit card industry. Being smart about credit can save you lots of money. And speaking of credit cards, check out our Fool credit card, which is so snazzy that it often serves as a conversation piece. Use it responsibly, and it can serve you well.
Meanwhile, consider making money off credit card issuers -- by investing in them. Many big-bank stocks, such as Citigroup
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Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. This article was originally published Aug. 23, 2006, and has been updated by Foolish research associate Katrina Chan. The Motley Fool has a full disclosure policy.