Catch 22 with premium credit cards

[Anonymous]

I wonder if those of you wanting to maximize your FICO know that using a premium card such as AMEX gold or platinum can hurt your score. AMEX does not report a credit limit, because there isn't one, so the credit bureaus use zero. So if you make a large purchase it hurts you credit to debt ratio, even though you are paying it off every month. You would be better off, score wise, with a standard VISA with a $10,000 limit. Seems unfair to me. AMEX says there is nothing they can do.

[Lel]

---

@Anonymous wrote:

I wonder if those of you wanting to maximize your FICO know that using a premium card such as AMEX gold or platinum can hurt your score. AMEX does not report a credit limit, because there isn't one, so the credit bureaus use zero. So if you make a large purchase it hurts you credit to debt ratio, even though you are paying it off every month. You would be better off, score wise, with a standard VISA with a $10,000 limit. Seems unfair to me. AMEX says there is nothing they can do.

---

Hi mr-goodcredit, and welcome to the FICO Forums.

For the purposes of FICO scoring, what you have written isn't quite correct.  If no credit limit is reported, then the highest past balance is used for the calculation of utilization.  If neither a credit limit nor a highest past balance is reported, then the balance on the card is excluded from the calculation of utilization for FICO scoring.

So, even if you have a large balance on a CC that reports neither number, the balance isn't hurting your utilization.  However, if you have large balances on other credit cards but a zero balance on the non-reported limit of $10,000, then your utilization won't benefit from that CL.  That is, if you have a CC that does report a CL with a balance of $5000 out of a $10,000 limit , and a CC with a zero balance but a $10,000 CL that isn't reported, then your utilization will be calculated as 5000/10,000 = 50%, not 5000/20,000 = 25%.

I have heard that non-FICO credit scores do not exclude the balances of card with unreported CLs.  So, a high balance on a card that does not report a CL will still be used the calculation of utilization in the non-FICO score formulas, which can a have serious negative effect on those scores.  But since those scores are not used in credit and lending decisions, it's no big deal.

ETA: here's a relevant blog post: Is there no limit to the confusion surrounding NPSL cards?

[AndySoCal]

Lel,

Whar is the source of the information on what is included or not include in the credit utilization? Some ot the common theories on this site do not agree with comments made by the FICO spokesperson.

[Lel]

This information comes from the author of the blog post referenced above.

[Anonymous]

Lei,

Yes, I have noticed that the bureaus use the "0 limit" in their scores. Even if FICO uses highest past balance that is not as good for the score as a high limit reported. Say you had a high past balance of $5000 and then bought your wife a $10,000 ring. If AMEX reported a $100,000 limit, this example wouldn't be a big negative. I guess my point is AMEX could do something to rectify this. After all, I'm paying for their card.

[Anonymous]

---

@Anonymous wrote:

Lei,

Yes, I have noticed that the bureaus use the "0 limit" in their scores. Even if FICO uses highest past balance that is not as good for the score as a high limit reported. Say you had a high past balance of $5000 and then bought your wife a $10,000 ring. If AMEX reported a $100,000 limit, this example wouldn't be a big negative. I guess my point is AMEX could do something to rectify this. After all, I'm paying for their card.

---

Since it is a charge card and you PIF every month, then PIF before the statement reports. problem solved.

[Lel]

---

@Anonymous wrote:

Lei,

Yes, I have noticed that the bureaus use the "0 limit" in their scores. Even if FICO uses highest past balance that is not as good for the score as a high limit reported. Say you had a high past balance of $5000 and then bought your wife a $10,000 ring. If AMEX reported a $100,000 limit, this example wouldn't be a big negative. I guess my point is AMEX could do something to rectify this. After all, I'm paying for their card.

---

Hey, I'm totally on your side here.  I've got two Chase NPSL credit cards with a combined CL of nearly $30,000, and neither of them are used in calculation of utilization.  My response was to clarify that having a card that doesn't report a CL (or high balance) isn't going to be any more harmful than the loss of the CL in the denominator of the utilization equation.

Some people have frantically come onto these boards to inform us that because they ran up the balance on a card that reports no CL, they had a massive score drop because their utilization was >100%.  For example, they might have two cards, one with a $1000 CL and another with a $2000 CL.  The second card doesn't report a CL.  They have a zero balance on the first card, but a $1500 balance on the second.  The non-FICO score formulas still include the second card's balance in utilization, but only use the first card's CL.  So, they end up with $1500 / $1000 = 150% utilization.  Very, very bad for scores.  But the FICO score doesn't include the second card's balance.  For purposes of FICO scoring, the utilization is $0 / $1000 = 0%.

Having a card that reports no CL and no high balance, or is classified as an "open" account (see the blog link for further discussion about this), can actually be used to one's advantage with regard to utilization.  This is what I did during this holiday season, and this is what's illustrated above as well. I put all my holiday purchases on my Chase credit cards, and also paid for some new window blinds, airplane tickets, and other routine expenses with these cards.  If these cards were used to calculate utilization - using both their balances and their CLs - my utilization would have been at least 10% if not a little higher.  But they weren't used in the calculation, and my utilization as calculated by the FICO score sits blissfully at 1%.

[AndySoCal]

Here is link to article on AMEX and FICO credit utization. The source of the information is Craig Watts the spokesperson for FICO.

http://www.foxbusiness.com/personal-finance/2010/08/31/charge-card-balances-wont-impact-fico-credit-...

If you disagree with the part about high balance being included or not.  The calculation is simple total revolving debt divided by FICO credit utilization percentage in the MY FICO report. This will give the approximate total credit limit(s) is in the calculation keep in mind the credit utilzation percentage my be rounded off.  In my case balance is included in the calculation but the high balance that is reported is not. The account is being reported as Open and the loan type credit card.

[Lel]

---

@AndySoCal wrote:

Here is link to article on AMEX and FICO credit utization. The source of the information is Craig Watts the spokesperson for FICO.

http://www.foxbusiness.com/personal-finance/2010/08/31/charge-card-balances-wont-impact-fico-credit-...

If you disagree with the part about high balance being included or not.  The calculation is simple total revolving debt divided by FICO credit utilization percentage in the MY FICO report. This will give the approximate total credit limit(s) is in the calculation keep in mind the credit utilzation percentage my be rounded off.  In my case balance is included in the calculation but the high balance that is reported is not. The account is being reported as Open and the loan type credit card.

---

I can't quite understand what you are saying.  Are you trying to determine the total amount of credit limit being used in the calculation of utilization?  And which credit report are you working with - TU or EQ?

Because of the rounding of the utilization, I don't think you can accurately calculate the credit limit used by rearranging the equation (i.e. [total revolving debt] / [utilization percentage] = [credit limit]).  For example, let's say I have a utilization that's calculated to be 4%.  This could be exactly 4%, or 3.5%, or 4.4%.  These will all round to 4%.  If my revolving balance is $3000, here are the possible CLs that could be calculated:

$3000 / 0.035 = $85,714 CL

$3000/ 0.04 = $75,000

$3000/ 0.044 = $68,182

That's a pretty broad range.

The first sentence in the response is the same as what I said earlier.  A card that does not report a credit limit is not used to calculate utilization.

With regard to the designation of the account as "open", as mentioned in the blog post, with the newer versions of FICO (EQ/Beacon 5.0, but not TU 98), open accounts are excluded from utilization calculations altogether, regardless of whether a high balance or CL is reported.  I was able to prove this to myself by comparing the utilizations calculated for my TU and EQ reports that I pulled on the same day a couple months ago (and again last month).

[haulingthescoreup]

My understanding was that there were some inaccuracies in this quote. I remember something about this one, the one in Fox Business News.

It was a misinterpretation, more than a misquote, but I do remember that the confusion centered around the scoring of charge cards. I'll see if I can dig something up.