AMEX & Carrying a balance. Myth or Truth?

[tr24]

I see a lot of people say "Oh, AMEX doesn't like you carrying a balance."

Is there any solid proof of this?  Statements directly from AMEX or something said by an exec?

Seems like the kind of thing no one is sure of but many people assume.

Does anyone have an link to a credible article or site talking about this?

Or maybe im just watching too episodes of Mythbusters.

[myjourney]

IMHO they don't care as long as it's not long term 

[enharu]

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@tr24 wrote:

I see a lot of people say "Oh, AMEX doesn't like you carrying a balance."

Is there any solid proof of this?  Statements directly from AMEX or something said by an exec?

Seems like the kind of thing no one is sure of but many people assume.

Does anyone have an link to a credible article or site talking about this?

Or maybe im just watching too episodes of Mythbusters.

---

There's no such statements made by anyone from Amex management.

This mostly stems from the perception that Amex traditionally offers charge cards which are essentially net 30 accounts. 

Customers whom have PIF "seems" to have better chances at high CLs or CLI approvals, though the data sample may be very skewed and therefore inaccurate. 

Secondly, Amex is very risk adverse and have much tighter controls in place compared to their competitors, which is why they have the lowest default rate in the industry. The "ideal" low risk customer would be one who never fails to make their payments in full on time. 

So hypothetically speaking, paying in full may increase your internal scoring with Amex. However, even if you do not make payments in full, it is not going to drastically alter your internal score and standing with Amex. There are plenty of examples of people whom didn't pay in full and still managed to get approved for CLIs and new cards. 

In a way, it's more accurate to interpret as "AMEX prefers their customers to be at the lowest risk of default." But even if you are not in that category, that doesn't mean they want nothing to do with you entirely, as long as your risk score doesn't exceed their threshold. 

[NoNonsense]

I don't know about this particular issue, BUT, there are a number of credit myths that populate these boards.  Things are presented as facts, when if you dig are just alleged information that has been passed from one generation of posters to the next, or from one credit website to the next, and two or three years later everybody assumes is an established fact.  

Let's face it there are a lot of things we are not permited to know exactly how they work, so people specualte, others report "success" by doing this or that.  The problem is that there are so many variables that is very simplistic to atribute any one success or failure to one specific factor, however since some people want to push some specific theory of theirs, they say that's why it happened, trust me, I know, follow me, I will take you to the promised land of plastic, black shiny plastic....

[Cdnewmanpac]

To say there is no evidence is, I think, an overstatement. While in b school in 2011, I took a course in information systems management and one of the modules focused on use of predictive algorithms in the credit industry. The two cases we were assigned centered on Amex and Capital One. I know the Cap1 case was HBR and I BELIEVE the Amex case was Ivey, but it has been a few years and I may be misremembering. Our job was to compare and contrast the two approaches:

1. There was a statement in the Amex case that their model was originally designed and implemented when Amex only offered charge products and that their model is still, in some ways, influenced by the charge card data. 

2. In researching our case, one of my colleagues found an article about recent (would have been 2010) executives who had left Amex to take over the credit card programs at both Chase and Citi. In the article, it specifically cited Amex's experience with high net worth individuals who pay their balance in full each month.

3. In my own research for the case, I found a 2008 annual stockholder meeting transcript in which the CEO expressed confidence that Amex (centurion bank, specifically) would weather the financial crisis in part because their risk model favored those who charge high amounts and pay in full. This had left them less exposed to long term debt and thus less vulnerable to losses from cardholder unemployment. He also mentioned their history as (and experience with) a charge card company as having led to a more favorable risk profile.

I acknowledge that CEOs shape their message in these meetings, that business journals rarely engage in actual journalism and that b school case studies are often shaped to highlight a specific point. But Amex executives hold quarterly conference calls to analysts, have yearly stockholder meetings and are obligated to disclose information about future earnings. In each of these, from everything I've ever read, Amex executives talk up their risk model and I have come across multiple references to their history as a charge card company. 

I think those statements are also consistent with the experience of many people posting to these boards over time. Is that "evidence"? No. I'm a scientist and understand the high standard needed to call something evidence. I could also point out that my own experience mirrors this theory: My wife has great credit and the only card she's ever been denied for was the amex costco. She had a deal from amex on a clear card a few years ago that gave her 6.9% apr for the life of a particular balance transfer. She promptly transferred the remaining debt from our wedding (about 20k) and proceeded to pay it off over 4 years. Prior to doing that, she routinely got CLIs from amex. Since, she has been denied every request plus the costco. I had terrible credit, but used my zync for large purchases and paid every month. I was given the costco amex and the limit went 5k, 15k, 25k. I've never been denied an amex product or CLI.

Is the idea that Amex favors PIF and high income speculation? Yes. But it isn't based on "myth". It is extrapolated from public statements in a variety of contexts as well as the experiences of thousands of people over time.

Do with it what you want.

[Omnipotent]

If on a promotional APR, they understand. If on your regular APR, they will take this has you having financial troubles.

[bobbay]

@cdnewmanpac,

That was a really nice response.  Thank you for the info. 

[tr24]

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@Cdnewmanpac wrote:

To say there is no evidence is, I think, an overstatement. While in b school in 2011, I took a course in information systems management and one of the modules focused on use of predictive algorithms in the credit industry. The two cases we were assigned centered on Amex and Capital One. I know the Cap1 case was HBR and I BELIEVE the Amex case was Ivey, but it has been a few years and I may be misremembering. Our job was to compare and contrast the two approaches:

1. There was a statement in the Amex case that their model was originally designed and implemented when Amex only offered charge products and that their model is still, in some ways, influenced by the charge card data. 

2. In researching our case, one of my colleagues found an article about recent (would have been 2010) executives who had left Amex to take over the credit card programs at both Chase and Citi. In the article, it specifically cited Amex's experience with high net worth individuals who pay their balance in full each month.

3. In my own research for the case, I found a 2008 annual stockholder meeting transcript in which the CEO expressed confidence that Amex (centurion bank, specifically) would weather the financial crisis in part because their risk model favored those who charge high amounts and pay in full. This had left them less exposed to long term debt and thus less vulnerable to losses from cardholder unemployment. He also mentioned their history as (and experience with) a charge card company as having led to a more favorable risk profile.

I acknowledge that CEOs shape their message in these meetings, that business journals rarely engage in actual journalism and that b school case studies are often shaped to highlight a specific point. But Amex executives hold quarterly conference calls to analysts, have yearly stockholder meetings and are obligated to disclose information about future earnings. In each of these, from everything I've ever read, Amex executives talk up their risk model and I have come across multiple references to their history as a charge card company. 

I think those statements are also consistent with the experience of many people posting to these boards over time. Is that "evidence"? No. I'm a scientist and understand the high standard needed to call something evidence. I could also point out that my own experience mirrors this theory: My wife has great credit and the only card she's ever been denied for was the amex costco. She had a deal from amex on a clear card a few years ago that gave her 6.9% apr for the life of a particular balance transfer. She promptly transferred the remaining debt from our wedding (about 20k) and proceeded to pay it off over 4 years. Prior to doing that, she routinely got CLIs from amex. Since, she has been denied every request plus the costco. I had terrible credit, but used my zync for large purchases and paid every month. I was given the costco amex and the limit went 5k, 15k, 25k. I've never been denied an amex product or CLI.

Is the idea that Amex favors PIF and high income speculation? Yes. But it isn't based on "myth". It is extrapolated from public statements in a variety of contexts as well as the experiences of thousands of people over time.

Do with it what you want.

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Wow.  That is exactly the kind of response I was looking for.  

Smashed it out of the park.  Made a lot of sense.

Thank you

[thom02099]

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@tr24 wrote:

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@Cdnewmanpac wrote:

To say there is no evidence is, I think, an overstatement. While in b school in 2011, I took a course in information systems management and one of the modules focused on use of predictive algorithms in the credit industry. The two cases we were assigned centered on Amex and Capital One. I know the Cap1 case was HBR and I BELIEVE the Amex case was Ivey, but it has been a few years and I may be misremembering. Our job was to compare and contrast the two approaches:

1. There was a statement in the Amex case that their model was originally designed and implemented when Amex only offered charge products and that their model is still, in some ways, influenced by the charge card data. 

2. In researching our case, one of my colleagues found an article about recent (would have been 2010) executives who had left Amex to take over the credit card programs at both Chase and Citi. In the article, it specifically cited Amex's experience with high net worth individuals who pay their balance in full each month.

3. In my own research for the case, I found a 2008 annual stockholder meeting transcript in which the CEO expressed confidence that Amex (centurion bank, specifically) would weather the financial crisis in part because their risk model favored those who charge high amounts and pay in full. This had left them less exposed to long term debt and thus less vulnerable to losses from cardholder unemployment. He also mentioned their history as (and experience with) a charge card company as having led to a more favorable risk profile.

I acknowledge that CEOs shape their message in these meetings, that business journals rarely engage in actual journalism and that b school case studies are often shaped to highlight a specific point. But Amex executives hold quarterly conference calls to analysts, have yearly stockholder meetings and are obligated to disclose information about future earnings. In each of these, from everything I've ever read, Amex executives talk up their risk model and I have come across multiple references to their history as a charge card company. 

I think those statements are also consistent with the experience of many people posting to these boards over time. Is that "evidence"? No. I'm a scientist and understand the high standard needed to call something evidence. I could also point out that my own experience mirrors this theory: My wife has great credit and the only card she's ever been denied for was the amex costco. She had a deal from amex on a clear card a few years ago that gave her 6.9% apr for the life of a particular balance transfer. She promptly transferred the remaining debt from our wedding (about 20k) and proceeded to pay it off over 4 years. Prior to doing that, she routinely got CLIs from amex. Since, she has been denied every request plus the costco. I had terrible credit, but used my zync for large purchases and paid every month. I was given the costco amex and the limit went 5k, 15k, 25k. I've never been denied an amex product or CLI.

Is the idea that Amex favors PIF and high income speculation? Yes. But it isn't based on "myth". It is extrapolated from public statements in a variety of contexts as well as the experiences of thousands of people over time.

Do with it what you want.

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Wow.  That is exactly the kind of response I was looking for.  

Smashed it out of the park.  Made a lot of sense.

Thank you

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Bravo, Cdnewmanpac!   One of the best post EVER on here or any other forum ! ! ! !

Not only smashed it out of the park, but a Grand Slam, bases loaded, bottom of the 9th in the 7th game of the World Series ! ! !

[Open123]

@cdnewmanpac

Excellent post! 

I was going to reply, but after reading yours, there's nothing I could possibly add to improve upon your insights.  Needless to say, I couldn't more with your assessments.  Part of the issue is when those try to apply the scientific method (incorrecltly, in my view), where a single contradiction invalidates an entire hypothesis, to someting as fluid and dynamic as an issuer's, AmEx in this case, lending criteria and preferences.

I never really understood the, "well, AmEx was fine after I added 100 AUs from Eastern Europe and they all spend 100 times more than I do, so it's a myth."