One of the drawbacks of having multiple American Express cards is that you might hit the $35,000 credit boundary that flags your account for Financial Review. This is where American Express puts your cards on a time out while they verify your finances. Once your account is flagged, you have a few days to submit your documents. Otherwise, you may have your accounts closed.
I underwent the Financial Review once. If you recall my story, this was when I had several people as authorized users on my accounts. Naturally, the spending we all put on my cards was more than I could afford on my income. As it turned out, it was more than some of the authorized users could afford too.
American Express launched a Financial Review to be certain that I could afford to pay my accounts. Fortunately, they were satisfied with having access to my tax records to verify my income. What resulted for me was that my charge cards had hard caps placed on them. Normally, your spending limit is 3X your average monthly spending in the last 6 months. However, given the high balances, they set hard caps, which is not typical of charge cards.
Last night, I sat down and worked out that I am a few hundred dollars of credit away from the $35,000 threshold that triggers a Financial Review. For all practical purposes, I am capped out on my credit cards with American Express. I would have to close one to be able to open another. I think the Hilton Honors Business Card will be the one. That one has a $3000 credit limit. Its replacement will also have that same credit limit.
I am cornered with respect to opening new accounts. My AMEX Business Gold card started me off with a $10,000 Pay-Over-Time limit. And, they also issued me the AMEX Green Card with a $7,000 Pay-Over-Time limit. The trouble with these two cards is that I could not simply put a $5000 charge on either one without having worked my way up in average spending. I would have to spend at least $1700 per month for six months on one of them to be able to charge $5000. But, I'd be maxed out at that point, despite being able to carry a balance up to $7K or $10K. They're strange in that way.
Do I Need More Than $35,000 credit?
No. I do not. The issue is not the credit. The issue is the mix of credit. It is heavily weighted towards the charge cards rather than the credit cards. This is a problem because charge cards have spending limits that change and credit limits that do not. The way I spend, the spending limit and credit limits don't match.
Credit cards, on the other hand, have spending limits and credit limits as one and the same. So, I can have a $5000 credit card sitting empty until a couple of months later, if I need to spend $5000, it will accept the full charge. You can't always do that with charge cards.
In other words, my problem is that too much of my available credit is throttled by spending limits.
I also don't need more than $35,000 in credit from American Express because there are other credit card companies that would gladly offer credit.
So, realistically, I don't need to fear Financial Review as I already know that I'm at the threshold. And, the fact that I am at the threshold means that I have a significant amount of credit already.
Assuming that I carried a balance of $34K on all my AMEX cards, the charge cards would still, theoretically, offer me more spending power. So long as I pay off everything above the $34K, they would continue to extend spending power. Of course, I don't intend to test that. My biggest expenses are tax payments that may take me a couple of months to pay off.
Strategically, I would keep both the business and personal charge cards for the majority of my spending. And, I would have a high limit credit card for those one-off big charges.
As a side note, credit cards report your credit utilization ratio to the credit agencies. Charge cards report your balance. However, as there is no preset spending limit, they can't report a utilization ratio. This is what makes AMEX charge cards advantageous for everyday spending. They do not affect your credit rating as much as credit cards do.
Well, that's all for now.