The best way to use AMEX personal loan to boost Fico score

[xenon3030]

Hello,

I recently approved an AMEX personal loan for a 12 month payment period (~5k). This is my first loan installment. Since I also have a bit short credit history (<4y the oldest credit card, not keeping balance on credit cards), I am looking for the advices to avoid degrading my Fico 8 Score (due to the loan utilization ratio at the beginning I guess it should have negative impact, also as a new account) and instead helping it (EX: FICO 8: ~723):

1. Is it a good idea to do a large payment in the first month (for example pay >90% of it)? In this case, how do they determine the remained monthly payments for the rest of the period (do they consider the remained balance and afterward divide it into the remained months?)? Note that it is possible to edit the auto payment and no penalty for early payoff.

2. If the above method would not be helpful, is it possible to pay it off completely in the first month to possibly avoid reporting to credit bureaus and simply open a small SSL Alliant loan as mentioned in the forum to help the Fico score?

3. How does AMEX report the loan payments to the credit bureaus? Does it depend on auto or manual payment, the excess payment amount or something else?

4. Does it have flexibility to change the payment period after approval from 12 month to 48 or something else?

[SouthJamaica]

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@xenon3030 wrote:

Hello,

I recently approved an AMEX personal loan for a 12 month payment period (~5k). This is my first loan installment. Since I also have a bit short credit history (<4y the oldest credit card, not keeping balance on credit cards), I am looking for the advices to avoid degrading my Fico 8 Score (due to the loan utilization ratio at the beginning I guess it should have negative impact, also as a new account) and instead helping it (EX: FICO 8: ~723):

1. Is it a good idea to do a large payment in the first month (for example pay >90% of it)? In this case, how do they determine the remained monthly payments for the rest of the period (do they consider the remained balance and afterward divide it into the remained months?)? Note that it is possible to edit the auto payment and no penalty for early payoff.

2. If the above method would not be helpful, is it possible to pay it off completely in the first month to possibly avoid reporting to credit bureaus and simply open a small SSL Alliant loan as mentioned in the forum to help the Fico score?

3. How does AMEX report the loan payments to the credit bureaus? Does it depend on auto or manual payment, the excess payment amount or something else?

4. Does it have flexibility to change the payment period after approval from 12 month to 48 or something else?

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I don't have personal experience with an Amex personal loan but my suggestion, since you don't seem to actually need the money, would be:

1. immediately pay it down to $450;

2. if,  the next time it reports, it reports the good way -- like Alliant -- then leave it alone and pay a little bit each month

3. if it reports the bad way, showing the loan due date accelerating, then take out an Alliant SSL                                                                                                   

[UncleB]

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@SouthJamaica wrote:

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@xenon3030 wrote:

Hello,

I recently approved an AMEX personal loan for a 12 month payment period (~5k). This is my first loan installment. Since I also have a bit short credit history (<4y the oldest credit card, not keeping balance on credit cards), I am looking for the advices to avoid degrading my Fico 8 Score (due to the loan utilization ratio at the beginning I guess it should have negative impact, also as a new account) and instead helping it (EX: FICO 8: ~723):

1. Is it a good idea to do a large payment in the first month (for example pay >90% of it)? In this case, how do they determine the remained monthly payments for the rest of the period (do they consider the remained balance and afterward divide it into the remained months?)? Note that it is possible to edit the auto payment and no penalty for early payoff.

2. If the above method would not be helpful, is it possible to pay it off completely in the first month to possibly avoid reporting to credit bureaus and simply open a small SSL Alliant loan as mentioned in the forum to help the Fico score?

3. How does AMEX report the loan payments to the credit bureaus? Does it depend on auto or manual payment, the excess payment amount or something else?

4. Does it have flexibility to change the payment period after approval from 12 month to 48 or something else?

---

I don't have personal experience with an Amex personal loan but my suggestion, since you don't seem to actually need the money, would be:

1. immediately pay it down to $450;

2. if,  the next time it reports, it reports the good way -- like Alliant -- then leave it alone and pay a little bit each month

3. if it reports the bad way, showing the loan due date accelerating, then take out an Alliant SSL                                                                                                   

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+1

I got a small Amex loan last month; I opted for the lowest amount ($3500) with the hopes that it would behave similar to the SSL, but it doesn't appear to work that way.

This is from section 10 of the Loan agreement:

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We generally apply each payment we receive as follows:

• we apply your payment first to any accrued interest, then

• to any fees, expenses and other amounts due (excluding principal and interest), then

• to your principal loan balance.

However, if you pay more than your Monthly Payment Due on the Payment Due Date, or make additional payments after the Payment Due Date but before your Next Invoice Date shown on your current loan invoice, we will apply the overpayment or additional payment to your principal balance. You will still be required to pay the Monthly Payment Due shown on the following loan invoice. If you pay more than your Monthly Payment Due or make additional payments after your Next Invoice Date shown on your current loan invoice but before or on the next Payment Due Date, we will apply your payment first to your Monthly Payment Due for that loan invoice period. Any excess will then be applied to principal loan balance.

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In my case I've already paid back $1500 (as my first payment) which leaves me with a balance of $2k; I plan to pay $500/month until it's PIF. 

My plan isn't ideal, since for the maximum positive impact you want to have an installment loan open (but with a low balance).  That said, I took a hit when my last old PIF installment loans fell off EQ (they are still on my TU and EX for a few more months) so I'm hoping that the recent installment activity will yield some score improvement even once the account is reporting PIF (we'll see...).

[UncleB]

I've moved the thread to 'Understanding FICO Scoring' for additional exposure...

--UB

[Anonymous]

What isn't really clear from the Amex loan terms above is whether or not they change your monthly payment after making a large payment that cuts down on the principle balance.  It does clearly state that after making such a payment that you'll still be required to make "your monthly payment" each month, but it's not clear if that monthly payment amount stays the same or if they reduce it dramatically as to attempt to extend the life of the loan the original term length, thus attempting to still make as much interest as possible off of the loan.

[UncleB]

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@Anonymous wrote:

What isn't really clear from the Amex loan terms above is whether or not they change your monthly payment after making a large payment that cuts down on the principle balance.  It does clearly state that after making such a payment that you'll still be required to make "your monthly payment" each month, but it's not clear if that monthly payment amount stays the same or if they reduce it dramatically as to attempt to extend the life of the loan the original term length, thus attempting to still make as much interest as possible off of the loan.

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+1

I agree; I wish the language was more clear. 

I'm assuming the 'worst' (that with a pre-payment the scheduled amount will still be due), although I would love to be pleasantly surprised.  In any case, FWIW I'll have a definitive answer to share in a few weeks. 

[xenon3030]

I did my first payment in the last week but this account has not been reported to credit bureaus. The terms/conditions are not clear e.g. they "may" report to credit bureaus only for a missed or a late payment. Therefore, even reporting to credit bureaus is not certain.

[UncleB]

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@xenon3030 wrote:

I did my first payment in the last week but this account has not been reported to credit bureaus. The terms/conditions are not clear e.g. they "may" report to credit bureaus only for a missed or a late payment. Therefore, even reporting to credit bureaus is not certain.

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Yeah, mine hasn't reported yet either, but since they take a while to report their cards I'm not too surprised.

There's a report in one of the threads in 'Personal Finance' that it does report:  http://ficoforums.myfico.com/t5/Personal-Finance/Amex-nextstep/m-p/4786228#M12640

I also did my first payment a week or so ago, and I paid an even $1k hoping that the payment would post before the reporting started (so that it woulnd't start off at 100% utilization).  I'm not going to be upset if that part doesn't work out, but it will be nice if it does.

[xenon3030]

The AMEX loan seems not working like Alliant and it is very different. I received my second invoice after I paid ~90% of the balance as the first payment. The monthly payment amount did not change for the second month and it seems that it is a fixed amount. But the total amount that should be paid off is going to be calculated monthly (charging an interest based on the remained balance at the end of each monthly cycle). 

Since my AAoA is a bit young (~1-2 years), I need to monitor the Fico8 fluctuations before paying off the loan completely to see whether it is wisely to open an alliant loan before paying off the AMEX loan completely in the third month. I think, if I pay off AMEX loan in the third month without opening another loan account such as alliant, the Fico8 would drop significantly.

[UncleB]

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@xenon3030 wrote:

The AMEX loan seems not working like Alliant and it is very different. I received my second invoice after I paid ~90% of the balance as the first payment. The monthly payment amount did not change for the second month and it seems that it is a fixed amount. But the total amount that should be paid off is going to be calculated monthly (charging an interest based on the remained balance at the end of each monthly cycle). 

Since my AAoA is a bit young (~1-2 years), I need to monitor the Fico8 fluctuations before paying off the loan completely to see whether it is wisely to open an alliant loan before paying off the AMEX loan completely in the third month. I think, if I pay off AMEX loan in the third month without opening another loan account such as alliant, the Fico8 would drop significantly.

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I'm having the same experience... I half-expected it to be like that, though.  Now if only it would start reporting already!  (Not surprised by that either... Amex is notoriously slow to report new accounts).

In my own case even old PIF installment accounts made a (modest) difference to my scores, so although any boost I get from the Amex loan won't be long-term hopefully there will be a "residual" bump once it's PIF.  If not there's always the Alliant SSL to fall back on.