Is American Express Bad For Your Credit Score?
Posted on March 28th, 2007 by Marc Chase Posted in Credit Cards | 3 CommentsIn short yes, Amex does hurt credit score. Although typically considered A card of “prestige” and the no limit can definitely come in handy, it is in fact hurting your credit score.
Here’s why
It’s called “Credit Utilization” and is the second largest factor in determining your credit score. Basically it is your balance to available credit ratio. In other words, if a consumer has a $20,000 limit and a $10,000 balance you are at 50 percent utilization.
Here is where Amex hurts your credit score. Since there is no limit, the credit bureaus can’t make the “credit utilization” calculation since half of the equation is missing. Therefore, any balance you have (even 5.00) will appear as the max.
An example of this is a Mr. Citrano opened a Citibank World Mastercard with now limit. Within 2 months his credit score dropped 50 points. The reason for this was because it had no limit and his balance, no matter how small appeared to be the limit.
The effects of this could dramatically increase the cost of everything you do. Since your credit score could drop like in Mr. Citrano’s case, interest rates you qualify for could increase. That means car loans, mortgages, credit cards etc.
So what can you do? Personally I don’t like the card but what you can do if you love your no limit card is request they show your highest balance to date as your limit. So theoretically, you could go spend 50K on a no limit card (pay it off fast of course) then it will show a 50K limit.
Obviously you have to apply some common sense to this strategy, but if you like your no limit cards and want to protect your credit score, that is about your only option.
That is a fact I did not know. Is there any way to get around that, maybe by making it known to a potential creditor that you have a card with no balance and that is why credit score may be a little (or alot) lower than it should?
I always looked at a black amex card as prestigeous, like you said. but now not so much.
Nothing much you can do. It is a good card, its just bad in terms of how it reports. You take the good with the bad I suppose.
I think people reading this should note that this post applies only to American Express’ CHARGE Cards, not their credit cards. For those who don’t know the difference: a charge card is one where the account holder must pay off their entire balance in full every month, no exceptions. A credit card is one where the account holder can choose to pay over time. American Express’ charge cards have no limits, however most of their credit cards do.