August 26, 2010
-
News: How Do No Limit Credit Cards Affect FICO?
Trying to understand how your credit card accounts affect your credit score can often be confusing and difficult. Typically, your score takes into consideration the amount of debt you're carrying with the available credit left on your credit card account. However, this isn't always the case. There are a few exclusive cards such as those offered by American Express that do not have a credit limit. These cards usually require the cardholder to pay the entire balance off in full each month. This piece of your score is called credit utilization. Your utilization is the percentage of credit that you have already utilized compared to the amount you have available. In other words, your credit card balances in relation to your credit limit. It is true that your FICO score considers your available credit when calculating your credit score.
So how would these premier credit cards factor into your credit score calculation? FICO considers these types of cards to be charge card accounts and they are coded as such. To offset the impact that charge accounts have on your credit score, FICO excludes these accounts when calculating your utilization score. Although these accounts are excluded from the utilization piece, they are not excluded from the overall picture. Therefore, charge accounts like credit card accounts are considered when looking at the length of time the account has been open and the cardholder's payment history. You can see that by doing so, it means you must continue to make on time payments each month.
Cardholders should be aware of the fact that debt repayment histories have the greatest impact on their FICO score. Therefore, whether you have a charge card such as an American Express card that does not have a credit limit or you have a traditional credit card with a credit limit and minimum payment due each month, you should always pay your payment on time every month if you want to have the highest FICO score possible.