"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.