Amex and FICO score


P

Patrick

I have 3 credit cards (2 visa and 1 furniture store card) +2 years left on a
car loan.

These all show up on my Equifax report, and my FICO score based on that
report is 694.
Because of credit problems in the past, my interest rates on those cards are
very high (20-24.99%) I've applied for a new card with a low interest rate
and a good balance transfer deal so that I might be able to pay off the debt
I have (carrying high balances) sometime before I die...

I've been thinking about opening an Amex (charge, not blue) account for some
time, but I was planning to wait maybe another year just to avoid opening
multiple accounts at once.... I've recently gotten an offer from them where
they'll waive the annual fee for 1 year, so I'm tempted... (rewards points
+extra warranties, etc will benefit me), but I'm concerned and don't
understand the FICO "sudden ramp-up of new openings" calculation.

before:
visa1
visa2
furniture_store
car

after:
visa1
visa2
furniture_store
car
new_visa (balances from visa1, visa2, furn_store, not to exceed 40% of cred
limit of new visa)
amex?????
 
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M

Mike

Patrick said:
I have 3 credit cards (2 visa and 1 furniture store card) +2 years left on a
car loan.

These all show up on my Equifax report, and my FICO score based on that
report is 694.
Because of credit problems in the past, my interest rates on those cards are
very high (20-24.99%) I've applied for a new card with a low interest rate
and a good balance transfer deal so that I might be able to pay off the debt
I have (carrying high balances) sometime before I die...
I've been where you are, and the only way to get out of debt is to
make a concious decision to pay it all off. So it is good that you
want to start.
I've been thinking about opening an Amex (charge, not blue) account for some
time, but I was planning to wait maybe another year just to avoid opening
multiple accounts at once.... I've recently gotten an offer from them where
they'll waive the annual fee for 1 year, so I'm tempted... (rewards points
+extra warranties, etc will benefit me), but I'm concerned and don't
understand the FICO "sudden ramp-up of new openings" calculation.
Forget about the possible FICO implications for a moment, and think of
it this way: how will opening an Amex account help you get out of debt
faster? Reward points and extra warranties aren't really worth it if
you are paying 20% interest on your credit cards, are they? Are 3000
extra frequent flyer miles worth it, if you can't afford to go on the
vacation because you have too much debt?

Personally, I think the answer is no. But that's just me. Opening
the Amex account doesn't sound like the best thing to do right now,
but that's just me.
before:
visa1
visa2
furniture_store
car
If you post your balance and APR% for each account, the people in this
newsgroup can offer slightly better advice. They've helped me
immensely.
after:
visa1
visa2
furniture_store
car
new_visa (balances from visa1, visa2, furn_store, not to exceed 40% of cred
limit of new visa)
amex?????
Will your "new_visa" card be able to completely wipe out visa1, visa2,
or the furniture_store account?

The general idea is that you should rank your debts by interest rate.
The higher the interest rate, the higher the priority in paying that
debt off. So if you can transfer your entire balance of your highest
account to your new visa, then that might be good.

My situation worked as follows. I had 3 accounts, we'll call them
Visa1, Visa2, and Discover. I figured out the order I should pay them
off in based upon the interest rate. It turned out to be:

Discover
Visa2
Visa1

Every month I made the minimum payment for each, plus an extra payment
on the Discover. I put as much as possible into this extra payment,
and I did this by figuring out a budget for myself that I could live
with. Eventually, I paid the Discover card off, then I moved onto the
Visa2. And so on and so on.

It can be quite daunting, especially if your balances are high. The
key is to stick with it and not to get discouraged. Once you get a
card paid off, you will notice that your credit card companies will
begin to offer you special interest deals, or they will just lower
your rates in general. The closer you get to 0, the better the deals
will become. This is just how it worked for me, your mileage may
vary.

I just recently moved my remaining debt to a 3.9% interest rate on my
one credit card. This is for the life it takes me to pay the debt off
(assuming no defaults, etc). So good things come to those who stick
with it.

The main thing is to do something about it, which you are doing. I
might suggest spending $20 on the book "Personal Finance for Dummies,
3rd ed." by Eric Tyson. It is a nice book about personal finance.

It is about changing your lifestyle. You are spending more than you
get ... something has to change, or else you will jsut go back into
debt when you pay your credit cards off.


Mike
 
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T

Tad Borek

I have 3 credit cards (2 visa and 1 furniture store card) +2 years left on a
car loan.

These all show up on my Equifax report, and my FICO score based on that
report is 694.
Because of credit problems in the past, my interest rates on those cards are
very high (20-24.99%) I've applied for a new card with a low interest rate
and a good balance transfer deal so that I might be able to pay off the debt
I have (carrying high balances) sometime before I die...

I've been thinking about opening an Amex (charge, not blue) account for some
time, but I was planning to wait maybe another year just to avoid opening
multiple accounts at once.... I've recently gotten an offer from them where
they'll waive the annual fee for 1 year, so I'm tempted... (rewards points
+extra warranties, etc will benefit me), but I'm concerned and don't
understand the FICO "sudden ramp-up of new openings" calculation.
As the other poster said, FICO score and rewards points are
low-priority at this point...focus on paying down the cards. An
improved FICO score naturally follows from that. Generally when you
carry balances, it's better to pay for ongoing expenses in cash and
commit to a payment plan for the cards. You don't want to put another
penny on your cards because interest will accrue from the date of
purchase - everything you buy is in effect marked up.

In theory you could use the Amex card instead of cash to earn
points/warranties, and pay it off every month in full, rather than
paying in cash. But I think the problem with that approach is that you
already have three cards with balances, and say that you've had credit
problems in the past. True Amex is a revolving charge card but if you
end up behind in payments, fees and interest charges are triggered
just like any credit card. As the other guy said, the problem to
address isn't the specifics of the cards but rather reducing your
spending - another card won't help that at all.

One exception I can think of...you might want a card with a zero
balance that you use for special purposes, where a card helps things.
If you need extra car-rental coverage because you travel a lot, and
the plan that comes with the Amex card is somehow better, then that
might be an argument for getting an Amex card ONLY for car rental
charges - it could save you $$ vs. buying additional coverage. There
may be similar reasons to buy something on the card so you get
warranty/theft protection - though the restrictions on those benfits
are typically so strict that they might not be all that useful. Or you
might want the fraud protection that comes with a card, if buying
something online. If you got a card for these reasons you'd need to
strictly limit your use of the card to these "special purchases," and
of course pay it off in full (or even, prepay it on the day of
purchase so you aren't tempted to spend $ you don't have). Otherwise
it'd just end up as another card with a balance on it.

The rewards points though - that's just not worth having another card.
It's gravy, when you use the card as a substitute for cash, and pay
the bill off every month. But otherwise you're just paying 20 cents in
interest to earn a penny or two in benefits.

-Tad
 

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