Is American Express Good For Your Credit Score?

Is it a good idea for your credit score to use an American Express card?

American Express also referred to as Amex, is among the largest credit card providers globally. Like Visa, Mastercard, and Discover, Amex released credit cards that let the consumer buy and pay later. However, the question that may be forming in your mind right now is how having this Amex card affects your credit score. Is having an American Express credit card a plus or is it a negative towards your credit rating?

What Factors Are Considered When Calculating Your Credit Score

Consumers need to be aware of what makes up their credit score before zooming into details of credit score about American Express. Two categories of credit scores are well-known and regularly applied, namely FICO and VantageScore. While the exact formulas differ slightly, both companies look at five main factors:

Credit utilization - The part of your credit card balance that you use about your total credit that has been provided to you. This brings a good proportion of your score hence the need to be very keen when choosing your answers.

Credit utilized – The percentage of credit limits provided that have been used at a particular time. One equally dangerous thing is the fact that a high percentage of the credit limit that you have will affect your score.

Credit history length – The amount of credit history that you have had. Why the longer your credit history, the better.

Credit limit - The total credit available to you across your different credit cards and/ or lines of credit. Case in point; excessive account creation means high risk, but having few accounts also reduces your score.

New credit utilization – Having several new credit cards opened within the past few months means more risk and thus lower credit score.

The weight of each factor may differ but except payment history and credit utilization rate, these are the most impacting factors on your credit score.

Advantages of an Amex for Your Credit

Given the criteria above, there are a few reasons why having an American Express card can be beneficial for your credit:

No pre-set spending limit – Amex cards are not always restricted by a spending measure. Unlike its competitors, there is no limit on how much you can spend on the Amex cards so long as you have settled your bill. This gives you more control over your credit utilization; this means that when you make your payments, you can decide on how or which account to apply it.
Better credit line – most American Express credit cards offered to consumers are usually associated with higher credit limits than the other issuers. If your credit limit is higher, then your utilization of credit will be comparatively lower for the same amount of spending.
Amex Membership Rewards – On-time payment incentives are earned through compensation on your card payment through programs like membership rewards points. These incentives assist clients to make payments on time and this is a factor that is very vital for a good score.
Longer credit history – As you are aware, American Express has been in the market for more than 165 and therefore it is very likely that your Amex account will be open for several years. Another factor is that it is favorable for your score if your credit history with an Amex card is longer.
Free annual credit score – The Amex website offers free credit score updates and other resources to track credit health. This visibility assists you to better manage your score the way you want to.

Downsides for Your Credit

However, having an American Express card also comes with a few drawbacks:

High fees – another general characteristic of Amex cards is that fees are higher than those of other issuers. High interest increases over the period if you charge a balance from month to month, and this will lower the score of your credit.
Drawbacks of having no preset spending limit – The only disadvantage of the card is that some people may misuse it by spending more than they are supposed to. This is because when using an Amex card frequently, is an indication of credit risk and therefore can offend the credit utilization rate thus reducing your credit score.
Balance transfer restrictions – balance transfers can be done from other credit card companies, but it is a more limited offer from American Express. However, there is always the advantage of using balance transfers to steer clear of high interest rates.
Lesser credit reporting - Most of the card issuers are known to submit your payment records to all three credit bureaus namely Experian, Equifax, and TransUnion but Amex only submits to Experian. That is why, if a lender uses other bureau records to evaluate your credit history, an Amex card is not taken into consideration.
No interest-free period for cash advances – Unlike purchases where there is an interest-free period, cash advances attract interest from the time they are made, and hence their interest-free period is zero. This can prove very costly in a short amount of time if a person is frequently using cash advances.

Guidelines You Need to Follow While Applying for an Amex Card for Credit Building

If you have an American Express card or are considering getting one, here are some tips to use it as a tool to build your credit history:

Make at least the minimum payment every month – If possible, create monthly automatic payments to ensure that you will never miss a payment. Payment history is vital.
Avoid using the new card heavily – Only use the new card lightly and aim at repaying it in full every month. Having a balance results in increasing fees over time, and this is something that most people dislike.
Do not charge a lot in the first billing cycles - It is wise to charge relatively modest amounts on your new card in the first few months. Conversely, high spending rates can be considered risky behavior because it is associated with drastic increases in expenses.
Stretch out the credit applications – It is advised not to go for new credits very often, say once a year at most. Make too many hard inquiries within a short time and you will get denied, plus you will temporarily see a drop in your score.
Request for higher credit limits – most of the cardholders have been in good standing for some time with Amex, you can simply call the company to request an increase in your credit limits which will reduce the utilization rate.
To look out for a bonus – before making a voluntary termination of the Amex card, it is wise to contact the customer service department to find out if they have any bonus that they can offer to keep the account active. In this approach, it decreases the overall credit limit as well as the length of your credit history.

The Bottom Line

However, it is with the spending power of the cardholder and his or her ability to meet payment obligations that the financial gains can be seen of opening and using an American Express credit card responsibly can improve credit score and credit report progressively. It is, however, important to be careful of some of the risks that are associated with some of the credit cards that are issued by Amex including the rather steep interest rates and charges, and therefore ensure that you repay your credit card balances in full each month.

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