$300,000 on Credit Cards and an 815 FICO Score

The choice to use credit cards tends to be more personal than financial. While credit card use can be the gateway to a lifetime buried in debt, it doesn’t have to be. Most people are Type A credit card users. Type A credit card users see credit cards as a tool for buying anything for which cash might not be available. This leads to spending more than one can afford, increasing debt month after month. Type A credit card users often pay interest and sometimes pay late fees, increasing the cost of the use of the credit issuer’s money.

Type B credit card users use credit cards as a spending tool. They take advantage of the float provided by credit card issuers, a form of leverage, to delay their payment, allowing their own money to keep earning interest in a savings account. Type B users pay their bill on time and in full every month, collecting valuable rewards. The fees that Type A individuals pay to credit card issuers — as well as interchange fees issuers charge merchants — cover the cost of accepting Type B credit card users. Without the income generated by borrowers who pay interest and late fees, credit card issuers might need to reduce the rewards offered to those among Type B.

There’s more about Type A versus Type B credit users in this article about breaking the credit card habit.

Pete D’Arruda is a good example of how far Type B credit card users can go. While Pete admits to occasionally carrying a balance, when he does, it’s a fraction of the $300,000 total credit limit he has over 25 credit cards. I can’t imagine why anyone would need that much credit, but Pete seems to have created this financial situation just as a proof of concept. It may have paid off. He claims to have a FICO credit score of 810-815, squarely in the “excellent” range. His good score has likely saved him thousands of dollars thanks to lower interest rates and more favorable insurance terms, and with a mix of good credit cards, he is accumulating rewards points that he can use. Pete has also used his good credit history to negotiate annual fee waivers on some of his credit cards, including the elusive Visa Black Card.

Extreme perspectives are always interesting. There are many people who, as a reaction to overspending and climbing out of debt, have sworn off credit cards completely. Any credit card use is seen as bad or dangerous. For some spenders, that might be the case. I wouldn’t suggest anyone with a tendency towards compulsive or emotional spending to seek the latest credit card offers. For people who don’t have their finances under control, credit cards can be destructive. The choice of a financially secure individual to refuse all credit card usage, despite the potential for earning rewards and taking advantage of the float is an extreme action, just like Pete is an extreme example in the opposite direction.

Moderation may be more boring, but it’s the right answer for most people. Anyone who is financially prudent can take advantage of a few, appropriate credit card offers. Not everyone, even those who are completely in control of their finances, should attempt what Pete D’Arruda has done. A few mistakes could be costly.

Photo: SqueakyMarmot
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