This is a potentially very serious matter for us and we would appreciate some advice. We're in what may be a bit of an unusual situation in that we are consciously planning to max out most of our cc's for business purposes. Yes, we know our scores will tank. We're wondering if there is a strategy anyone can suggest to minimize the potential for being jacked (lesser problem) or having the CLs reduced (greater problem) or the accounts closed. Many of our accounts are new, within the past 6 months or so. Several have never been used. Some are business accounts and of course don't report but the majority are personal. Most accounts are NOT joint although a couple are. We've been able to go as high as $23K so far on the personal AMEX gold, but we're going to need to be able to carry balances for about 5-6 months (making payments of AT LEAST 10-15% as we go along.) So AMEX will give us a little short term float but it isn't practical for the 5-6 months we need. Here are some thoughts we had: We know 50% utilization seems to be the magic number for a significant score hit. We know over 75% utilization (of "accounts" not overall) showed up as a reason on a CC denial notice last year. We've been thinking about whether it would be best with newer cards to make one or two large purchases to max them out completely very quickly so that reducing the available credit isn't a possibility. We do have several promotional deals available for from 3-12 months which we want to take full advantage of. CC's are : Amex Gold Amex Membership Rewards Gold Amex Business Gold Optima Platinum Citi Platinum Select (2) Citi Smartcard Citi Business Citi AA Business State Farm Bank* Capital One Business Capital One Entrepreneur Chase Chase Walmart GM Household (2)* MBNA Business LOC* Phillips 66 Mastercard Providian Get Smart (Aria) Sears Gold Mastercard (2)* Target Visa (2) 1 new Bank of America* *Brand new, never been used Not counting AMEX the totals of the CLs are about $110K. We also have a $35K HELOC which we'll be using as well. In case you're wondering why we don't just get a business loan, we won't be able to provide financials, so that's out. What we're really looking for are thoughts on how to keep from scaring the creditors to death, yet still take full advantage of the credit available to us. Scores are in the 660-725 range now, with most around 690. No late pays at all, no derogs except for 1 or 2 tax liens (2 and 8 years old) on about half of the reports. Thoughts would be very much appreciated. DemPooches
I have ALWAYS "MAXED-OUT" 0.00% cards...IT'S ONLY LOGICAL!!! I don't think F.I.C.O. goes by one account...it is the TOTAL DEBT TO TOTAL CREDIT LIMITS...(I think)
Good question DemPooches. I can say that until 2 years ago, higher than 50% utiliazation seemed to tube my scores. It no longer seems to do this...my hit is only minor. Specifically, 2 1-20K lines over 90% used, drops EQ to 715 range. It isn't much, sorry I can't provide more. Good luck on your financing efforts and more power to you.
You are right this is a very serious matter,and not only would your scores would tank but you could pay very dearly for this by paying much higher interest rates on the accounts for maxing them out.You also run the risk of getting your credit limits cut to protect the lender.MBNA gets alittle concerned when a person uses more the 33% of revolving credit against total availiable credit.Under any conditon it is no recommended to exceed more then 50% total but no more then 40% would be the ideal range for carrying unsecured debt.Creditors are watching all of us!If we cross the line with them we would get hammerd by them, so my advice is not to do it,and save yourself from getting into trouble with your creditors.I hope this sheds some light for you on how to use credit very wisely.
Thank you for your response and concern. Yes, we are quite mindful of the potential repercussions. We normaly run at about 20% utilization for just the reasons you mentioned. Even being aware of the potential pitfalls, we are choosing to fully utilize our available credit for about 5-6 months nevertheless. This is a carefully considered choice for expanding our 5 year old business and the risk is minimal. We've been thinking through the best way to do it to keep from losing any of our available credit. We've thought about going just under 50% on the new cards and then make a substantial payment (maybe the whole balance) before taking it up to 95% or so which would be paid down in 5-6 months. We've also considered going to 95% on the new accounts in one transaction and then making payments of 20% or so to eliminate the potential for cutting our limits. We have very significant cash flow, which makes doing this kind of thing a lot easier. We're just looking for thoughts to see if there might be another way of approaching this...another technique that we might not have considered. We've even thought about contacting the credit departments of the CC companies and telling them what we're planning to do so they won't be alarmed. DemPooches
I speak from experience. I maxed out my cards last year. You have two problems. One, when you get towards your upper limits, they will cut the amount of credit available. Two, they will jack your rates. The good news for you is that I don't see a FirstUSA card in your mix. They are the worst. They are the only one to lower my CL, and it was done without notice. All of the cards jacked my rates, but MBNA at least gave me an option. I could keep my current rate if I agreed to never use my card again (the option I chose), or , if I ever used the card (even once), my rate would automatically go to 24.99%. You have one additional problem. You have to pay it back. That is where I am now. Paying back $70,000 at up to 24.99% is a lot harder than paying back the money at 6.9%. Which leads me to the number one rule: ALWAYS HAVE SOMEWHERE TO GO. YOU NEED AT LEAST ONE CARD WITH NO BALANCE SO THAT WHEN THEY JACK YOU, YOU CAN TRANSFER YOUR LINE TO SOMEWHERE ELSE. They know when you are close to maxing out, and they will take advantage of you. Now that I have given you the sermon, let me give you a partial answer to your questions. I did not see any problems with the rates being jacked until I hit over 90%. Also, when I hit over 95%, FirstUSA cut my CL on the last card I had with any credit available. The scores will tank. I was not even aware of FICO at the time so I was not watching my scorees. After I borrowed the money, I started watching my scores. I have perfect, long term credit (30Years), with no derogatories. My only negative is high utiliztion. I started at 666, slipped to the mid 650's, then have gradually increased it to 682. I still owe most of the money, My Credit watch stimulator says I will reach over 800 when it is all paid off. My experience has been that for each 1% of the debt I pay off, I gain a point. For what is is worth, I have three FirstUSA cards, MBNA, Citi, and Nextcard/FDIC/Merrick. Citi was real good about lowering my APR and increasing my CL when I started paying the balances down. They also are offering low BT deals. The others have not been very good about lowering APR. FirstUSA is offering all kinds of BT offers at a decent rate, but not a lower APR.
One additional thought. I think you have this covered, but it is important. Once you get above 40 -50% in a short period of time, no one will extend you any more credit. So, don't plan on getting another card if things do not work out as planned. But, I think you have already covered this issue. Can I ask what the total amount of available credit is? You have a lot of cards, and I am guessing it is high.
Hi Thomas, Thanks for all the great info. To answer your question we have about about $110,000 in credit card lines and another $35,000 in our home equity line, and the two combined should be adequate resources for us. And that doesn't count AMEX which will be available for about $45K in short term purchases as well. We've worked for about 8 months on getting our scores as high as we can so we could get several new lines in anticipation of this business move. We've got a BUNCH of inquiries right now and of course all of the new lines lower the scores a little as they show up on the reports. The positive for us is that since this credit will be used primarily for inventory, the cash flow will be there for making significant payments as we're going along. We just have to be prepared for carrying high balances for a few months. We'll see how it all goes.... DemPooches
For us, this thread is about the equivalent of working on credit to qualify for a mortgage, it is the reason for all the disputes and validations thus far, we're finally there. This was the goal. For this reason, I'm going to bump it again in case there might be any other thoughts on the best strategy for us to employ in getting the max utilization of our credit without spooking our creditors. Does anyone see any wisdom in contacing the credit departments of the CCCs and letting them know what we're up to BEFORE they squeal? (Or even before we use their card?) DemPooches
Have you talked to the creditworks guy? From what I understand he carries high balances all of the time by way of BT offers, but I don't know for a fact.
I think it is a very bad idea to contact them ahead of time. They are interested in minimizing their exposure and risk. It is very easy to cut your available credit and I think some will do it. You don't have FirstUSA, which is good because they are the worst at cutting your credit limit when your balances on other cards will go up. A good question to ask here is "who is likely to cut my credit limits once my balances go up?" I know others have had this problem other than me. Any advice?
I'd suggest you get as much as you can as fast as you can. According to some stuff published Fri. the average consumer only uses 22% of available credit and that figure is dropping on a year to year comparison. I think when they see your utilization skyrocketing when everyone else is cutting back on using credit, you'll trigger an intense review of your credit lines.
I'm totally maxed out on all my bank cards. Some are subprime like Providian and Aspire; others are prime cards. I have 3 cards for $3000 each from Citibank, at 10.7, 12.7, and 14.7%. While Providian and Aspire have repriced me to 30% and 33% respectively, Citibank has held off except for some very minor repricing.
Not to go off on a tangent, but... Have you considered talking with a small business banker at a small to medium size bank. If you can show cash flow and consistent profit over five years, you should qualify for an open ended commercial line of credit for your business. These lines can be paid as you wish, so long as the interest is kept current. This type of financing can also get you into much larger credit lines, more than one might ever see with traditional CC's. I can appreciate what you want to do, but assuming you need 100K and would have the cash flow to pay it off in six months, many business bankers would be happy for your business. Please email me privately if you need a referral to a banker who would be interested in your type of business. *DISCLAIMER -- I am not affiliated with any financial institution and would not benefit from any referral *
Thank you so much for the kind offer of a referral. We investigated this possibility first and it isn't an option for us yet. Our primary issue in not being able to obtain a decent commercial line now is that we don't have financials to back us up. Our expectation is that the expansion we're doing now is what is going to allow us to turn the corner in having the paper we need for the next expansion. (We hope that in showing what we have paid off in about 6 months we'll be able to finance the next expansion a bit more "traditionally.") Thanks again very much for taking the time to respond to our post. We do appreciate it. DemPooches
Hi DemPooches Have you talked with your vendors about granting you terms on your purchases for your inventory? A lot of places will grant 30 and even 60 day terms to pay your bill without any penalty. If you have an established business relationship with your vendors,this should be relatively easy to do. If you are a new customer talk with a sales manager and see if you cant work something out. If you make a purchase and pay right away they will know that you should be trustworthy. If you can sell your inventory before you pay for it that would be ideal. Any solution you find that prevents you from maxing your cards would be ideal Good Luck
Another great suggestion. Yes we do have 30 day terms with most of our vendors. Problem is, due to the nature of the business, we need about 5-6 months and in our industry, those terms are not going to be available even to long-term (about 5 year) customers like us. What we do often is use our terms for the first 30 days, then have the vendor put the purchase on AMEX (we're taking advantage of membership rewards points whereever we can) for the next 30ish days, then pay AMEX off from our HELOC. Then we BT the funds back into the HELOC from a Visa/Mastercard with a good BT offer. Sounds convoluted I know, but it definitely helps buy us some time and as of right now our scores haven't been affected. We've probably got another 2-3 weeks before any of the "just under 50%" accounts start to report. AMEX being high doesn't seem to really count. We're relatively new customers with AMEX (only about 6 months), so we haven't pursued the "4 months to pay" deal they have available yet. We're going to do that as soon as we pay off the personal gold in a couple of weeks. We just want to be careful and not tie up all of our credit with AMEX because they have been a great resource for us in moving money around. We're also staggering our advertising and promotion in flights so that we can manage the growth too. If we can keep the growth at steady byt not explosive, the cash flow is far easier to manage. (But we've had to plan for explosive, just in case.) Anyway, that's a bit of our picture. So far we're very encouraged about how everything is coming together. We're like so many others. If it weren't for what we have learned from the folks here at Creditnet, what we're doing right now would not have been an option for many years. We're very grateful. DemPooches
