BACK

Expert Q&A

Charge card balances won’t impact a FICO credit score

Summary

Although the balances on credit cards are used in the calculation of credit scores, that isn’t the case for charge card accounts.

The editorial content below is based solely on the objective assessment of our writers and is not driven by advertising dollars. However, we may receive compensation when you click on links to products from our partners. Learn more about our advertising policy.

The content on this page is accurate as of the posting date; however, some of the offers mentioned may have expired. Please see the bank’s website for the most current version of card offers; and please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

Question for the CreditCards.com expert

Dear Credit Score Report,
Does an American Express card with no credit limit affect my credit utilization ratio? AmEx says no, but I want to make sure. If I have an AmEx card with no credit limit and a $3,000 balance and another card with a $3,000 limit and no balance, it would appear my utilization is at 100 percent. Am I missing something? Thanks. — Tony M.

 

Answer for the CreditCards.com expert

Hey Tony,
If that American Expresscharge card doesn’t have a credit limit, the creator of the most widely used credit scoring model says it won’t factor into your utilization ratio.

As you know, the credit utilization ratio is typically an important component of your credit score. However, charge card accounts — which you must pay in full each month — “are excluded when the FICO scoring model calculates credit utilization,” says Craig Watts, spokesman for FICO, creator of the dominant credit score. “The model, however, does use other information reported for charge card accounts, such as the account’s age and payment history, in calculating the score.” So while you don’t have to worry about how charge card spending will impact your credit score, you still need to make on-time payments to AmEx and exhibit other good borrowing behavior on your credit card and any other debts you may have.

Because charge cards typically don’t have preset spending limits, the FICO scoring model previously considered the highest balance on those cards. “In the old days, our scoring model had an option in which, under certain circumstances, it could substitute highest balance on record for a missing limit on a charge card,” Watts says. For example, if you charged $5,000 on a card one month and your balance never exceeded that amount, the model would consider $5,000 to be your credit limit. FICO says that approach hasn’t been used in its general scoring models during the last 10 years, however.

For your credit card, meanwhile, FICO will calculate a utilization ratio by comparing the balance on that card with that $3,000 limit. Since a lower ratio will benefit your credit score, try and maintain low balances on that credit card. You may also be able to get the credit limit on that card increased. Some experts, however, warn that calling your bank to request a limit increase could trigger an account review that actually leaves you with less favorable card terms. Of course, by spending more with your charge card and less with your credit card, there will be less debt for the scoring model to consider.

Most importantly, remember to always make repayments on time. “Whether people have a credit card or a charge card, the most important factor in building or improving their FICO scores is using credit responsibly. That means paying their bills on time and using their credit only when needed,” Watts says. “If they can do those things consistently, they should be well on their way toward maintaining a good score.”

Follow these tips and you should be fine. “There are many ways to build one’s FICO score over time,” says Watts. “Credit cards, in general, have a strong influence on the FICO score calculation. Charge cards can be just as effective as any other credit product in helping consumers establish a credit history.”

Good luck!

— Jeremy

See related: The components that make up a FICO credit score

 

 

What’s up next?

In Expert Q&A

How to transform a good credit score to great

Each day this week, our columnists will answer one of our readers’ most frequently asked questions. Today, we focus on how to boost your credit score.

Published: August 27, 2010

See more stories
Credit Card Rate Report Updated: November 13th, 2019
Business
15.14%
Airline
16.97%
Cash Back
17.16%
Reward
17.01%
Student
17.23%

Questions or comments?

Contact us

Editorial corrections policies

Learn more

Join the Discussion

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company’s business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.