Increased spending on a charge card -> credit score drop?

concernedSaver · 19 October 2016 at 1:21PM

After getting a couple more credit cards than I needed, I switched all my spending to an AmEx charge card for reward points, insurance and protection. I don't use my debit card or the other CCs anymore, except for cash withdrawal or where AmEx is not accepted.

I checked the Experian score I get for free through my Barclaycard, and noticed a marked decrease in the score, now bordering the "poor" region. I opened a free trial with them just to check how they worked out the score, and it seems that they consider the "increase in credit spending" as a negative factor. The other negatives, of course, being the young age of my credit accounts (moved in the UK two years ago, only 1 year with bills in my name).

I know that the "score" is irrelevant, and I'm not super-worried about having a stellar score, since I don't plan on getting a mortgage anytime soon (thanks Brexit) and a charge card suits my spending perfectly so I don't need a credit card anymore. I'm just curious: why would they consider spending on a charge card as a form of credit, if their credit file clearly marks that card as a charge card with no credit limit?

boo_star · 19 October 2016 at 9:48PM

A charge card is a form of credit, you don't pay immediately.

It is different to a credit card where you don't have to pay in full every month but it's still credit.

MSE_Chris · 20 October 2016 at 2:42PM

concernedSaver wrote: »

After getting a couple more credit cards than I needed, I switched all my spending to an AmEx charge card for reward points, insurance and protection. I don't use my debit card or the other CCs anymore, except for cash withdrawal or where AmEx is not accepted.

I checked the Experian score I get for free through my Barclaycard, and noticed a marked decrease in the score, now bordering the "poor" region. I opened a free trial with them just to check how they worked out the score, and it seems that they consider the "increase in credit spending" as a negative factor. The other negatives, of course, being the young age of my credit accounts (moved in the UK two years ago, only 1 year with bills in my name).

I know that the "score" is irrelevant, and I'm not super-worried about having a stellar score, since I don't plan on getting a mortgage anytime soon (thanks Brexit) and a charge card suits my spending perfectly so I don't need a credit card anymore. I'm just curious: why would they consider spending on a charge card as a form of credit, if their credit file clearly marks that card as a charge card with no credit limit?

Hi there,

Any recent card applications will impact your score in the short term. If you maintain the account successfully and pay on time (in full every month as it's a charge card), you'll see this increase over time. I hope that helps!

Whilst a mortgage lender will look at your credit history, they will look more at your affordability as opposed to your score. They'll focus more on your income and expenditure and ensure you can still pay this back should the rates shoot up.

Have you tried our new Credit Club to see how you look to lenders and to assess how your affordability measures up? We're hoping to include mortgages soon too.

http://www.moneysavingexpert.com/creditclub

Signing up won't affect your score. All the best!

Ben8282 · 20 October 2016 at 7:57PM

Your post is ambiguous.
You say you don't use your other cc's any more and now spend only on the charge card. But does this mean that these other credit cards have nil balances or are full to their credit limits and you are just making minimum payments on them every month?
Using and (presumably) repaying a charge card every month should not be having a negative effect. Perhaps the problem is with the state or conduct of your other accounts.

concernedSaver · 20 October 2016 at 10:18PM

Ben8282 wrote: »

Your post is ambiguous.
You say you don't use your other cc's any more and now spend only on the charge card. But does this mean that these other credit cards have nil balances or are full to their credit limits and you are just making minimum payments on them every month?
Using and (presumably) repaying a charge card every month should not be having a negative effect. Perhaps the problem is with the state or conduct of your other accounts.

My other (two) CCs have always been set to be paid in full by DD every month. I left a couple of web subscriptions on them ( < £10 each), just to keep them active, and I use one of them occasionally in places where AmEx is not accepted. Way less than £100 per statement.

I'm inclined to think that the real reason behind the score drop is having opened two new credit cards in less than three months. Perhaps the best advice for people willing to improve their scores is "stop obsessing with it"

Anthorn · 21 October 2016 at 12:30AM

concernedSaver wrote: »

After getting a couple more credit cards than I needed, I switched all my spending to an AmEx charge card for reward points, insurance and protection. I don't use my debit card or the other CCs anymore, except for cash withdrawal or where AmEx is not accepted.

I checked the Experian score I get for free through my Barclaycard, and noticed a marked decrease in the score, now bordering the "poor" region. I opened a free trial with them just to check how they worked out the score, and it seems that they consider the "increase in credit spending" as a negative factor. The other negatives, of course, being the young age of my credit accounts (moved in the UK two years ago, only 1 year with bills in my name).

I know that the "score" is irrelevant, and I'm not super-worried about having a stellar score, since I don't plan on getting a mortgage anytime soon (thanks Brexit) and a charge card suits my spending perfectly so I don't need a credit card anymore. I'm just curious: why would they consider spending on a charge card as a form of credit, if their credit file clearly marks that card as a charge card with no credit limit?

Mainly two parameters are relevant: The first is the proportion of available credit used (credit utilisation) and the total amount of available credit in relation to your income. Using too much of your available credit while having too much available credit in relation to your income at the same time marks you out as not able to manage on your income and likely to default.

concernedSaver · 22 October 2016 at 2:31PM

Quick update: turns out that Experian counts the charge card debit amounts against the credit limits of the credit cards. So my total credit utilisation shows more than 100%, because my charge card is counted as having £0 credit limit.

I'll try to explain this better: let's assume I have a total combined credit limit of £2,000. I spent £200 on the credit cards, but £2,000 on my charge card (holidays, yee!). The "overview of your credit and store cards" now shows my credit utilisation as 110%. Mind you, I haven't ever missed a payment nor I have a over limit marker anywhere on my file. Always registered on the electoral roll. All my past addresses are there. Of course I can't afford to spend £2,000 every month on credit cards, but that's what savings are for. Sorry Experian, there's no way I'm going to use a debit card for that amount of money.

This is beyond stupid: to make Experian happy I should move all my spending exceeding the credit limit of my sub-prime cards on my debit card, losing on air miles and cashback, because their algorithm is too stupid to understand how cards work.

I'll just stop worrying about my credit score, since the only credit I'll ever want to use is a mortgage, and I hope their algorithms are a bit smarter than that.

shortcrust · 22 October 2016 at 3:04PM

concernedSaver wrote: »

Quick update: turns out that Experian counts the charge card debit amounts against the credit limits of the credit cards. So my total credit utilisation shows more than 100%, because my charge card is counted as having £0 credit limit.

I'll try to explain this better: let's assume I have a total combined credit limit of £2,000. I spent £200 on the credit cards, but £2,000 on my charge card (holidays, yee!). The "overview of your credit and store cards" now shows my credit utilisation as 110%. Mind you, I haven't ever missed a payment nor I have a over limit marker anywhere on my file. Always registered on the electoral roll. All my past addresses are there. Of course I can't afford to spend £2,000 every month on credit cards, but that's what savings are for. Sorry Experian, there's no way I'm going to use a debit card for that amount of money.

This is beyond stupid: to make Experian happy I should move all my spending exceeding the credit limit of my sub-prime cards on my debit card, losing on air miles and cashback, because their algorithm is too stupid to understand how cards work.

I'll just stop worrying about my credit score, since the only credit I'll ever want to use is a mortgage, and I hope their algorithms are a bit smarter than that.

Why would you want to make Experian happy? They're not going to lend to you. As you perhaps already know, lenders don't see Experian's score. They look at your credit file and do their own analysis.

Ben8282 · 22 October 2016 at 8:13PM

I think that the problem you are encountering in that your monthly charge card spend exceeds the total combined credit limits of all your credit cards is a somewhat unusual one.
Amex charge cards are not credit builder cards and are given only to those with an established credit history who have demonstrated an ability to make full repayment of the balance each month.
Normally such individuals would have higher limit cards and not cards with such low limits that this is occurring.
My advice here would be to cease using the charge card and instead put some of this spend through the credit cards, repaying in full each month, with a view to getting the credit limits raised to more appropriate amounts.

Increased spending on a charge card -> credit score drop?

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