Wednesday, September 24, 2008

Realizing You Have Enough Credit is Like Porn: You'll Know it When You See It (thanks, Justice Stewart)

"So tell me, Gordon, when does it all end, huh? How many yachts can you water ski behind? How much is enough?" Bud Fox, Wall Street (1987)

As you can tell, I'm a big fan of that movie. In fact, this is the second column I've started off with a Wall Street quote. Here's the first one (link here). Bud Fox does ask a valid question, though. How much is enough? Additionally, how do you know when you've acquired enough? We'll see if I can answer those questions today.

The first question -- how much is enough? -- is largely a matter of individual circumstances. I've got pals who have more than $1 million in credit card limits. To me, that's amazing. Even if they charged $10,000 a month, they'd only be using 1% of their overall limits. One thing those limits do afford them is this: they will never have to worry about utilization issues (for FICO purposes). The average FICO high achiever uses 7% (link here) of his or her credit. These million-dollar-limit folks would have to use $70,000 to reach 7% utilization. Thus, these guys have the game beat here. Utilization (link here), which accounts for 30% of the FICO score, will never be an issue. Still, how much is enough?

Certainly, based on my needs, $1 million in available credit is too much for me. What's more, I cannot imagine ever needing that much credit. But that's me. For my pals, maybe they use quite a bit of their limits on a monthly basis. One thing they have in common is that they all have their own businesses. I imagine they run a lot of expenses through those cards. So, yeah, they might have what they need.

I have my own rule of thumb. I try -- and do -- keep my utilization at 1% overall. If I spend $6,000 a month on my cards, I want to have $600,000 in available credit. If I spend $3,000 a month, then I want at least $300,000 in available credit. That's how I can tell if I have enough. If I'm spending $5,000 a month, and have a $1 million in limits, I probably have too much credit. Still, that's my rule. You'll have to figure out your own. But that's how I determine if I have enough credit.

As for the second question -- how can you tell if you've acquired enough? -- I've figured that one out as well. By the way, I realize that both questions are similar. However, the questions have slightly different answers. The first question can be answered by defining how much you spend each month. The second question -- for me at least -- is determined by whether my goals have been met.

Have I diversified my portfolio? I have. Do I have a card with each of the major banks? I do. Do I have a relationship with companies that are well known for customer service? I do but I am still pondering a Discover application. Discover, I've been told, is well known for top-notch customer service. Although it doesn't issue the highest limits, it does handle customers in the way that I want to be treated. Given that situation, there's a possibility that I may apply for a Discover card at some point in the future.

How will I know if I've acquired enough credit? I'll know that I have acquired enough when all of my goals have been met. If Discover fits within my plan, then I would submit to you that I have not yet acquired enough credit. I can tell you that I am very close, though. I've got cards with Nordstrom, American Express, and Merrill Lynch. Before I applied for these cards, I had great expectations for their customer-service departments. I have not been disappointed.

I had fun with the title of this column but I really do believe you'll know when you have enough credit. Assuming you have set goals for yourself, it should be pretty easy to spot.

I have enough credit. My credit limits meet my needs. However, I still haven't acquired enough. After I grab that Discover card -- which should round out my portfolio -- I imagine that I will have acquired enough as well. I've been eyeballing that Discover credit card advertisement on my site for a few weeks now. It's probably just a matter of time before I finally pull the trigger. After I do pull the trigger, all of my goals will have been met.

Clearly, Paul Gauguin's painting (of two bare-breasted women) doesn't rise to the level of porn. But if it did, I think we'd all realize it. Indeed, as Justice Stewart once said: you'll know it when you see it.

As for my own situation, I think I've reached the end of the road. Indeed, I can see it. And I know it.

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  1. Bob WangSep 23, 2008 09:05 PM

    Greed is good, and I intend on being VERY good ;-)

  2. Credit MattersSep 23, 2008 09:11 PM

    Thanks for being here first, Bob. It's strange when you show up late.

  3. Bob WangSep 23, 2008 09:14 PM

    But, seriously, your 1% rule-of-thumb is right on.

  4. JakeSep 23, 2008 09:18 PM

    But how much will getting that last approval/CLI suck? No more looking for the best deal, shiny new plastic, etc.. that leg of the credit journey will be over.:)
    You can't have a blog that says nothing but "don't buy more than you can afford and pay on time".

  5. Credit MattersSep 23, 2008 09:19 PM

    Bob, I really do think the 1% rule is right on. I live it, so it must be right. Haha.

  6. Credit MattersSep 23, 2008 09:20 PM

    Jake, if I knew that people would listen to me, I would say that every day.

    Don't buy more than you can afford and always pay on time.


  7. Credit MattersSep 23, 2008 09:26 PM

    And always pay in full.

    You think if I posted that every day that people would visit the site? : )

  8. JoshSep 23, 2008 09:28 PM

    I assume you mean 1% overall right? Not each card?!

    I really just don't want to have so many cards they won't all fit in my wallet. I want cards from every major bank, a credit union or two - but I really don't want to have 10's of cards around getting no constant action. I do have a long way to go myself but to the 750 score range I come :)

    In terms of rounding out your portfolio, what about JCB? We haven't really heard of them in a while but apparently they are still accepting applications and the cards work on the Discover network. If you REALLY want to stand out, apply :) Also, Diner's Club which is now a Citi Mastercard would be unique to have I bet as well, albeit a bit redundant on your amex and it seems they no longer accept new applications...

    P.S. Site now looks superb :)

  9. Credit MattersSep 23, 2008 09:32 PM

    Josh, I am talking about 1% overall. Not talking about 1% for each card. But just remember that utilization factors each card and overall. There are two ways to get dinged.

    I think my last application will be Discover, Josh. During the past year I have applied for one consumer card: the American Express card. That shows you how much I have slowed my roll.

    And thanks for the compliment on the site. Indeed, thanks for the feedback on it. Wouldn't look this good without your comments and constructive criticism.

  10. Big BearSep 23, 2008 09:40 PM

    Great points again today. I've recently found that I have enough cards, but not enough limits. This makes it difficult, since I'm not a huge fan of the desk drawered stack of cards that I've accumulated.

    I'm trying to keep under the radar, but there are still some different banks and credit unions with some sights set on them. It's only a matter of time.

    Glad to see you are still contemplating that Discover card. :)

  11. Credit MattersSep 23, 2008 09:44 PM

    BB, last year and this year I was working to cull my cards. I combined wherever possible. I am now left (mostly) with one card at each major bank and credit union. It's made it really easy to keep track of stuff. Also, when I receive stuff from the card company I know which card it's for.

    Discover very much on my radar. I'll let you know when I pull the trigger.

  12. savemanateesSep 23, 2008 09:46 PM

    I'm going to insert a personal anecdote here. My father;s cousin was an insurance agent. I graduated from college after my two DDs were born. So when I had my first job post undergrad I paid my dad;s cuz a visit to ask about life insurance.

    He spent lots of time explaining insurance to me but the last thing he told me was the wisest. He told me to always pay for the largest amount of disability insurance in after tax dollars the company offered. He went on to say tht the probability of me becoming disabled before 65 was higher than my demise before 65.

    I have YOPD (youth onset Parkinson's). Fortunately I took his advice as my private disability pmts kicked in way before Social Security. I was able to maintain my lifestyle for me and my daughters without tapping into retirement funds. All tax free income.

    So if you have large credit card CLs and no disability insurance that would be a pornographic picture. If you get permanently disablede "credit won't matter."

  13. Credit MattersSep 23, 2008 09:49 PM

    manatees, thanks for the anecdote. I have to tell you, I learn as much from you guys as you might learn from me. I'm constantly amazed by the quality of my readers.

    Thanks for the tip, M.

  14. The LionSep 23, 2008 10:54 PM

    SM, I cannot agree more: disability insurance is so often overlooked!

    CM, I tell you what: that is one heck of a picture you started off with!

  15. Credit MattersSep 23, 2008 11:00 PM

    Lion, you should have seen some of my other choices. A few times I went too far. But this was a tasteful one. And, quite frankly, I like Gauguin.

  16. Don MiguelSep 24, 2008 04:01 AM

    I feel like I have enough credit. My typical monthly spend would run one card from 5-10% depending on the card and 1-2% overall. PenFed was my last app for some time absent an even more compelling rewards program. And thanks for the bit of art history education, too :).

  17. JakeSep 24, 2008 04:47 AM

    It would definitely be an exercise in creative writing, LOL!

    I'm going to keep using the Citi card and let it age until applying for PenFed for their rewards card. After that I'll either find the right fixed low interest or wait until my credit is good enough for Nordstroms.

    SM is dead on with disability insurance.

  18. LynnSep 24, 2008 05:10 AM

    Thumbs up on Disability Insurance. I became disabled at 30. I wish I had maxed it out But I had not reason to think I would not be able to work. The LTD payments were small, not enough income to get by. Well here I am 37 fully disabled, collecting social security. It was a bumpy road. Since My income is small,having good credit is a major goal for me right now.

  19. savemanateesSep 24, 2008 05:44 AM

    I had to wait years before getting SSDI pmts as there is NO test for most of the neuro disabilities. THey are diagnosed by symptoms. My Dx for years was 'essential hand tremors." It wasn't until I was in the advanced primary stages when I was falling down yada, yada that I finally was approved for SSDI. Fortunately my private insurance covered me.

    Paying the premiums in after tax dollars was an ouch....but every year when it came time to renew I just looked at my DDs, our home, their schools, our lifestyle...and I had no prob antying up again. If I had been single with no children...who knows.

  20. AnonymousSep 24, 2008 06:13 AM

    Hi Marcus,
    You may think that you have reached the end of the road in Credit Card aquisition, but there is another probability you may have not considered.
    Goldman Sachs.

    They have changed their status from Investment firm to banking. It should be fast tracked in about a week.

    With this opens up a wonderful, and titilating possibility. A Goldman Sachs Credit Card!
    If so, who can the partnering candidates be?
    Well, does Goldman want exclusivity and partner up with just one of the big 3 (Visa, Mastercard, or Amex) or does it want to spread out and have all 3 on its card?

    I AM WANTING, PRAYING, DESIRING, BEGGING, AND PLEADING FOR A GOLDMAN SACHS CREDIT CARD! It would be one of the most applied for CC's in my opinion.
    Watch, with my luck it'll have the same annual fee as Amex's Centurian (Black Card)!!

    OH YEAH!
    Well, to get your taste buds flowing, I've re-touched some pics to show what it could look like. It was done at the creditboards.


    Robert, Detroit/Windsor border guy.
    P.S. I like the photo of yourself Marcus. It brings a little more familiarity to your blog.

    Oh, I've written a thread on the current Barron's financial paper on the Creditboards credit forum. Give it a look.

  21. Credit MattersSep 24, 2008 07:10 AM

    Robert, I will check out the current Barron's. I have it right next to me. Let's see what you said about CB.

    As for Goldman, we'll see what happens. If they did issue a credit card, I would likely grab that one -- assuming, of course, I liked the card's attributes. We'll see.

    As for the picture of me, there are two schools of thought. One says that you should never reveal yourself -- because it tears down the imagination of the reader. Readers build up a picture of what you might look like.

    The other school of thought is that you do show the picture, and now the reader wonders what you sound like. Do I sound like Barry White? LOL. There will not be any sound files posted any time soon.

  22. Credit MattersSep 24, 2008 07:11 AM

    DM, I figured most people would like my art choice. Very tasteful.

    Sounds like you're on top of the credit game.

    Take it easy.

  23. JakeSep 24, 2008 07:18 AM

    "We finally got it together, babe. Isn't it nice..."

  24. JakeSep 24, 2008 07:20 AM

  25. Credit MattersSep 24, 2008 07:22 AM

    Thanks for the video, Jake.

  26. RoyaltySep 24, 2008 10:19 AM

    CM, thanks for the 1% rule - very helpful. As always, great article!!! And I love the new site design.

    SM, great advice on the disability insurance. I'll have to remember that when our open enrollment for benefits starts next month.

  27. Credit MattersSep 24, 2008 11:31 AM

    Royalty, glad you found my story useful. I live by that 1% rule. It works well. Even though my scores are not above 800 (my highest score is 777 and lowest is 764), the rule serves me well.

    And also glad that you like the way the site looks. I think we've tweaked it enough. I'm pretty happy with the appearance.

  28. AnonymousSep 24, 2008 12:00 PM

    Discover is cool.
    1) Excellent native english speaking CSRs. They do what you ask, right now. I was getting solicitation calls originating from my relationship with them, I sent a secure email saying "I don't want that, please remove me from all such lists" they said 30 days but it stopped immediately. You can call them or email them. They can understand you, you can understand them, they happily do what you request. That is the way customer service is supposed to work.
    2) If you are self employed and you obtain a personal card, they may call you a couple days later and ask you if you want a business card to go with that, using the same pull. Has happened for some. Or just go straight for business only if you don't want a new account on your personal, probably not a bad idea right now.
    3) You can pick lots of really neat card pictures, patterns, you can go on line and pick several. I don't know if they have a limit. But I know you can get a bunch.
    4) Yes the limit will be less than your big credit union limits. That's how they roll. Maybe their limits won't look so low compared to others in a year or so with the adjusting some of the others are doing.
    5) Its the fourth credit card network, in case the other three are down. You never know.

  29. Credit MattersSep 24, 2008 01:40 PM

    Anon, I appreciate the note. I continue to mull it over. Good information.


  30. Bob WangSep 24, 2008 09:07 PM

    Heh, heh, I was wondering what all the chatter about nudes was, till I actually looked at the graphic.

  31. Credit MattersSep 24, 2008 09:09 PM

    Haha. Yes. Just a few nude bodies adorning my blog this week. I really like the painting.

    Even though there is no new post up at midnight, glad you stopped by, Bob.

  32. Bob WangSep 24, 2008 09:10 PM

    P.S. I only read your blog for the articles ;-)

  33. Credit MattersSep 24, 2008 09:13 PM

    Bob, now that is funny!! I only read your blog for the articles, too.

  34. SeanSep 30, 2008 12:46 AM

    Does utilization on individual cards matter much? I prefer the rewards on my Amex cards & my Visa Signature card. The problem I can see coming up is that the cards I use most frequently are "no limit". I've heard these show utilization as 100%... is this true? If so, what's a die-hard mileage collector to do?

  35. Credit MattersSep 30, 2008 07:03 AM

    Sean, I also have a few "no limit" cards. These no limit cards are usually coded as "open" -- as opposed to revolving -- on your credit report. As a result, they do not hurt your utilization. When they report as revolving, as they do on Experian (I honestly don't know what the deal with Experian is), there's a chance you could get hurt there (though I hear from many people that they suffer no adverse consequence).

    Check your credit report, Sean. See if those no-limit cards are reporting as OPEN -- instead of revolving. If they are OPEN, you should be fine.

  36. SeanOct 2, 2008 04:29 AM

    Thanks for the advice. I pulled the reports and indeed that's how it's showing up. Revolving on Experian, Open on EQ/TU. EXP also reporting $0 limit whereas the others aren't reporting any limit. Ironically, Experian's also my highest FICO score (821) with the others in the upper 700's. No lates/negatives ever. So, I guess EXP's Revolving/$0 limit doesn't make a hill of beans difference to their scoring.

    I guess I was just shocked if not insulted at the paltry ($5k) limit given when I applied for a Costco Amex earlier in the year. (3% back at restaurants? absolutely had to have that!) I have plenty of months in the year where that's a single transaction (of many) on my other cards.

    Wachovia's Wealth Management cards are what I use most often and appear to be quite secretive on the reports. Highest balance ever, accounts are current but that's it. No monthly balance reporting like regular credit cards. I'm assuming that's why Amex shot so low. Amex pulled from EXP too.

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