I AM THE CREDIT CARD KING!

After reading the article Meet the credit-card king with $300,000 in credit.  I was compelled to stake my claim!  If Pete D’arruda is the credit king then what am I?

 

Mr. D’arruda has me beat in the total number of cards but, I have him beat on total available credit.  I have 16 credit cards from major banks with a total of $336,100.00 in total available credit.  Let that marinate for a second….16 CREDIT CARDS AND $336,100.00 IN TOTAL CREDIT.

 

Now before you stop reading my blog and curse me to the depths of whatever bad place you have in your mind.  Read the rest of this article first.   Of my $336,100 in total available credit, I have used only $5,920.14.  I should really say I have used zero since the balance is paid off in full every month.  But, credit report updates work in 30 day arrears and my last statement balance was $5,920.14.  Hence, the total credit used of $5,920.14.

 

So,  you probably are wondering.  Why Mr. YFS Why?  I heard credit cards are bad news bears.  Why do you have so many?  More importantly why do you have so much available credit if you don’t use it? Good question!  Let me tell you why.

 

Back in the day. Oh let’s say 2001.  Hey don’t judge me!  I use to frequent the fatwallet.com forums.  There are tons of posts on how to improve your credit score and accumulate large credit limits.  The advice of the forums mixed with my knowledge of how credit scores work, I took it upon myself to improve my credit score by obtaining 12 credit cards.  The other 4 credit cards were obtained roughly 4 years ago.  Fortunately it worked out for the best and my credit score has improved because of it.

 

How?

A credit score assigns a number to your creditworthiness — based on your credit history. The calculations are complex and take into account a number of related factors.  It’s actually 5 factors.  Let’s analyze the parts that make up a person’s credit score from most important to least important.

 

Payment History:

 

This one is simple.  Credit reports are a collection of your credit past.  Starting from the first day you established credit to 30 days ago.  35% of your score is derived from how timely you made payments.

 

Amounts Owed:

 

This is how much outstanding debt you have.  Now this is were I shine.  See the “amounts owed” is synonymous with the term “credit utilization”.  A good rule of thumb for credit utilization is no more than 30%.  Keep in mind the lower the credit utilization or amounts owed the better you look to the credit report algorithm.  To determine your credit utilization percentage.  Simply, divide the amount of credit used by the total amount of available credit and multiply by 100.

 

Using the numbers specified above, let’s see what my credit card utilization percentage is:

 

Amount of credit used = $5920.14

 

Total available credit = $336,100.00   ($5,920.14 / $336,100) * 100 = 1.76%

 

Here is the kicker!  The credit algorithm only cares about the credit utilization percentage in determining your credit score.  So if you had a credit card with a limit of $10,000 and only used $176.  You and I would be considered equals according the credit algorithm.

 

Why?  Because we have the same credit utilization percentage.

 

($176 / $10,000) * 100 = 1.76% credit utilization.

 

But, say you had an emergency and you had to use your credit card to purchase something for $2,000.00 while you had your existing balance of $176.  Your credit utilization would not be 1.76% any longer but 21.76%!   ($2,176/$10,000)*100 = 21.76% credit utilization.


 

Under the same scenario, if I had to purchase something for an additional $2000.00 on top of my $5920.14 balance.  My credit utilization score would be 2.35%   ($7920.14 / $336,100) * 100 = 2.35% credit utilization   Now we are not considered the same credit risk in the eyes of the credit report algorithm even though we just experienced the same emergency.  My credit score will stay relatively, your credit score would most likely drop significantly.

 

Length of credit history:

 


The longer the credit history the better.  Having a longer credit history is favorable because it gives more information about your spending habits.  NEVER CLOSE A CREDIT CARD.  You will erase all that good payment history since a closed credit card account will not remain on your credit report after 7 years.  Keep in mind that your average credit history length is shortened every time you open a new line of credit.  When I opened 12 cards at once in 2001 I took a major hit to my credit score because my average credit history length was shortened.

 

New Credit:

 

Each time you apply for credit an inquiry shows up on your credit report.  Even if you do not get the credit line but were just looking your credit score will be affected.  But, the credit report algorithm usually will accommodate you for credit shopping if all the inquiries were all in the same time-frame.

 

Say you’re looking for a car or home, and  you are trying to obtain the best rate from several banks and credit unions. The credit report algorithm will notice your pattern and eliminate or lessen the impact of your credit rate shopping on your credit score.  But, if you’re shopping for credit on various credit types on random intervals the credit report algorithm will not accommodate you and your score will be negatively affected by your actions.  I took a big negative hit on my credit score in 2001.  But, luckily time was on my side before I actually needed to use my credit score.

 

 

Types of credit used:

 

All credit is not the same. A credit card isn’t considered the same thing as a mortgage in the eyes of the credit algorithm.

 

There are two types of credit.

 

Installment:  Something you pay on specific terms for a defined period of time.  Think mortgage or car loan.

 

Revolving:  Credit that allows you to borrow repeatedly.  Think credit card or home equity line of credit.

 

The credit score algorithm is propriety but it seems that the type of revolving credit or the type of installment credit you have has a bearing on your credit score.  It is best to have a mix of all types of credit.  Until I established other forms of credit my credit score was negatively affected by obtaining the 16 credit cards.

 

So did my plan work?

 

Well let me explain.  Credit scores are on a scale from around 300 to 850, with 850 being the highest credit score possible.  My 3 credit scores are   Equifax – 800   Experian -792   Transunion – 796.   In January 2011 the national average credit scorewas 692.  I would say my plan worked out well.  I was able to take advantage of today’s mortgage rates and refinances my home to save $270,000.

 

Would I recommend my path to credit score dominance?  Nope.  Statistics have shown that people with available credit can’t handle it.  But there are less risky ways to improve your credit score without obtaining 16 or in Mr. D’arruda’s case 25 credit cards.

 

How to improve your credit score

  1. Pay  bills on time.
  2. Keep the balances on all credit cards/revolving lines of credit under 30%.
  3. Pay off debt.
  4. Do not close your credit cards.
  5. Do not get new credit accounts unless it’s needed.  (No store cards even if you get 5% off your next purchase!)
  6. Obtain a mix of credit types (But only seek credit if you need it)
  7. Be smart about it.  Treat your credit card like cash.  If it’s not in your budget don’t buy it!

 

  Attention Readers:  How do you feel about the use of credit?  What do you use it for?  Am I crazy for having 16 credit cards?

 

Comments

  1. Shane Curtis says:

    No wonder, you will be the next credit card king! By the way, credit cards are really bad to me but when I heard from you i think it will change my mind. Thanks for sharing!

  2. Your style is so unique in comparison to other folks I’ve read stuff from. I appreciate you for posting when you have the opportunity, Guess I’ll just book mark this

    page.

  3. I am all about having multiple cards, as long as there is clear understanding about why. Your post makes a lot of great points about the ‘why’ individuals can and should have more than one; but the x factor is always responsibility.

  4. lower mortgage rate says:

    Too late now. I Closed previous credit cards in 2010. About 3 cards since I moved in the US in 2005. Only 1 right now have a balance left that is on payment terms. I was told credit cards are bad so I closed them. Only $2000 left on this 1 card, and I can pay it off. But currently I am waiting on a short sale approval for a house -3 mths now.. My mortgage officer said do not pay it off because it will lower my score. Instead recommended me to open secured credit cards from my credit union. So credit union took about $1000 each from my savings towards each secured credit cards and gave me 1 visa and 1 mastercard. I pay if off at end of month and using less than 30% of allowed balance.
    If I payoff my the closed card and eliminate the monthly payment on that. Would it really lower my score. even if the card is already been closed for 2yrs? What if I reopen this card? would it lower my score?
    My goal is to improve my score the fastest way in 60 days. My mortgage rep will pull credit again because 90days ago she pulled my score and preapproved me. After 90days they need to pull score again. I want a lower mortgage interest rate.

  5. I have about $60,000 of credit available, which is pretty impressive considering I am a dental student with no income. I have been getting credit cards since I was in high school so I am hoping that once I get a good job I'll be able to increase my credit available to get somewhere close to where you are now.

  6. I don't have close to $300,000, but I'm pretty sure that I have over $100000. I have about a dozen cards, and this is after I closed 7 cards a couple of months ago.

    • Why did you close the cards? I would never close a credit card. I would simply stop using it.

      • Some I signed up for to take advantage of sign up bonuses (Spend $1000, get 10,000 points, etc.) but they had annual fees so I closed before incurring the annual fee.

        Others such as Chase will only allow you to have one type of card at a time, for example, If you have a Chase Freedom card, you can't apply for a second one (you will get an automatic denial letter).

        Chase Slate had a 0% interest, no fee balance transfer promo for 12 months that I wanted to take advantage of, but I already had a Chase Slate card. So I closed it, and then applied for the Chase Slate card. Chase did not want to extend me any more credit but allowed me to consolidate the $10,000 credit limit I had combined on my Chase Freedom and Marriott cards by closing them and moving the credit limit to the newly-applied for Slate card.

        • Ok so you closed a few cards to get better perks. The reason why I asked was because, I know closing the cards hurts more than it helps.

          • Yes, it can hurt because can show you have an overall higher credit card utilization rate if you carry a balance. However, I am more interested in sign-up bonuses at this time. In fact, the Barclay's NFL Visa I just signed up for included with the welcome package my FICO score and it was 725. But, when I have over a dozen cards, closing one or two does not create that significant of a hit. I do not plan to use my credit score for anything other than sign up bonuses for the time being. Both of my cars are reliable, I have a mortgage, and a stable federal government job.

  7. Man, I am truly impressed! That's HUGE! I've only got two cards… personal and corporate.

    To have that kind of credit access, you must be making much more than that right?

  8. im planning a vacation with my bf that my mom knows about but me and my mom share a credit card and i want to get a king bed with a whirlpool inside our room but am afraid this is going to show up on the credit card bill and I dont want my mom to see that.

  9. Wow! I would be so scared of what I would do if I had that much available credit. Holy moly! Haha. Thanks for the credit card graph breakdown too. I learned something new. :)

    • Carrie, I'm willing to bet you would follow your written budget to a T and only use your credit card for good :-)

  10. I could NEVER EVER play the cc utilization game to build my credit score. About four years ago, if I had $300,000 in available credit, I would have had about $300,000 in credit card debt! I could not be trusted with cc's. I'm still not sure I can be trusted with them, luckily, they are all closed due to my inability to be a mature, responsible adult. I have one left open w/a credit limit of $500 for emergencies while I'm still building up my EF. That's about as risky as I can get.

    • This is why I am The DEBT Princess and not the Debt Free Princess. That WILL change one day though.

    • If you keep a budget and stick to it you can play the CC game easy. No difference between credit or cash if you abide by your budget :-). I like credit for the following reasons:

      Protection
      Reward points
      45 day grace period
      Extended Warranties
      Because, life is easier
      I'm disciplined

      Once you get comfortable with plastic, I'm sure you can handle it.

  11. In this day of age, we all need credit cards (hotels, rent a car, credit protection). Some people view their availability as free money, and have the dangerous mentality of "spend now pay later". I'm definitely NOT against credit cards..just gotta learn how to leverage it in your favor.

  12. I gotta say, that is a sick amount of credit card debt, but it is all relative I suppose. As you suggest, your utilization rate is extremely low at <2%.

  13. How do you factor in your mortgage in the credit utilization figure? Or do you just use loans, credit cards, etc?

    • Chris,

      For this post I just displayed my credit cards utilization amount. But, the utilization rate of my installment loans also affects, to a much lesser extent, my credit score.

  14. Don't think for a minute I'm going to let you skate by and be the king of credit cards. I'm going to challenge you to a duel and we'll see who comes out on top (just emailed you the challenge).

    • Mike,

      LOL the King has retired. I aka Michael Jordan already has his championships. Why would I worry about Lebron James (you). hahaha Just kidding.. see your email for my real response :-)

  15. I didn't read it all yet, but I can already tell this is a very good article. I've thought of writing something similar for my site and will definitely use this as reference if I do.

    Fatwallet users in the USA are like RedFlagDeals users in Canada and I've been one of those for a lot of years :)

    Welcome to Yakezie!

    • SavingMentor,

      Thank you for your comment. If RedFlagDeals is similar to Fatwallet you know just how creative they can be when it comes to financing and working the system!

  16. I have a pretty good credits core – no mortgage or car loan though, just credit cards. I already have 5 cards – 3 regular credit cards, and 2 store cards. I opened 3 of them in the past year. One to get the 0% interest when I had to buy plane tickets for work and had to wait a few weeks to get reimbursed. (This was going to be my points card too, but the points turned out to be misleading.) One was to get better points. The third was a store card (Macy's) since I plan to buy more work clothes there.

    How long will it take for these 3 cards to help my credit, rather than hurt it by being new? (2 are almost a year old, the third is just a few months old.)

    • Kellen,

      Thank you for commenting!

      Often time credit cards reward offers are misleading or they come with huge restrictions or black out days. You really have to read the fine print on those types of cards. I'm not a fan of store cards because they don't allow you flexibility to shop at other locations. But, since you opened the Macy's card what ever you do. Do not close it. It will take 1-3 years of excellent payment history to offset the ding you get from opening new credit. You can shorten this time frame by asking the creditors to increase your credit limits. The bigger the better. See my utilization example for more detail

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