Taking advantage of credit card opertunities?

madmax

We all know the CC companies suck you in, give you checks to cash "as you wish" and then up your credit limit to get you stuck even further. The more you owe the more they will give you. Very easily even the people who watch their spending can get enticed to using more credit than they can afford and end up in trouble.

Now, on the other side of the coin. Last year around November I received several offers from different cards. A few of them offered checks which you could do anything you want with. No interest for over a year and no transfer fees caught my eye. I kept thinking why not take advantage of the offer? I mean, in the next year maybe I would need some extra cash and these "free for a year" offers would not be available. I could just stick it in the bank.

After much consideration I wrote out a check for $15K and bought a one year CD at around 3.5%. At the end I ended up with an extra $525. As a bonus, I looked at the credit card balance as a debt and paid it into my savings account and when the savings account got to about 4K I bought another CD for 6mos at a little less than 3%. This yielded another $50.

All this really got me thinking. When I saw a free AM EX card which offered around 2% cash back and no interest for 14 months I applied. Pretty much I charged everything I would have normally purchased on this card. It ended up a little over $14K (which I had stuck in savings as I spent) and I ended up with $290 cash back from that. At some point I should have put some of that in a CD as well but I didn't. Maybe next year.

I have a lot of cards I don't use and at various times they give you a $20 credit to get you using their cards. I got two of those last year. Another $40. I also used one where I got $30 off for buying from buy.com. Oh yea, there was one other card I made interest of about $100 back on.

The summary is that I ended up with about $900 extra cash for nothing (other than keeping track of the accounts) and about $12K extra in savings that I wouldn't have without tricking myself into paying off the card. Sure, I'll owe about $100 in taxes on the earnings. Still, $800 for nothing is pretty cool! By never actually spending any of the money I figured I was pretty safe. I've already started over this year with a $12K balance transfer. A few points off the short term credit rating shouldn't hurt as I will not be buying a new house anytime soon. I wouldn't suggest you try this unless you are fairly knowledgeable about how CC's work. A few missed payments with late fees can land you in the 29% interest rate on all your cards with no way to get out unless you have the cash handy.

I just thought this was an intersting process. I mostly concentrate on engineering type things but found this enjoyable.

madmax

MacLeod

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nadams

Credit cards are the devil... I have two, three if you count the one I got from my local garage when I needed emergency work done to my truck awhile back. Your idea would be even better if interest rates were better on CDs these days.... They just plain suck anymore. Of course, the more you put in and the longer it stays there, the more you get back, but it's just not worth it for smaller amounts.

Lucky for me, the CC companies still haven't skyrocketed my limits, so I'm only about $1400 in debt!

shack

I haven't paid any credit card interest in over 20 years. I pay the balance in full every month. I generally put everything we buy except groceries on our American Express so we get some cash back rebates. The only exception is when I buy a big ticket item with 3, 6 or 12 months interest free. The day before the intererst free period is over the balance is paid in full.

I have seen lots of folks get in troulble with credit cards. I was on the board of directors of the local Consumer Credit Counciling Agency for a while a few years ago where I've seen some pretty big debts, but nothing like what I've seen lately. It's not unusual to see clients with $50,000+ in CC debt and I've seen some as high as $100,000 ±. All of these people are paying 15-21% in interest. IT IS JUST STUPID!

Max, what you are doing is fine as long as you stay on top of it. There are a few downsides to what you are doing. Everytime you apply for a card it affects your credit score. Also, the more AVAILABLE credit you have it lowers your credit score. Be sure you close all of those cards you have laying around and never use. Low credit scores can bite you when you finance large items such as cars or homes with higher rates and can cost more than the amount you "made". You may be ok...just be aware it can happen.

dorokusai

MacLeod wrote:

Can you believe that? They run a person into bankruptcy and before the ink is dry on his court papers theyre already sending him credit card offers in the mail!

I just grabbed a tidbit from your comment but...isn't it you're fault, correct me if I'm wrong? Or are you trying to pass the buck on your own negligence of financial responsibility and knowledge? You have the right to cancel a credit card, regardless of balance, as you are bound by the previous terms and conditions to pay in full upon termination of service. Blah, blah...you should have known that, or been told that by a friend....but I'm sure you know now.

*GENERAL COMMENTS*

I'm no fan of the CC companies either, but like Shack...pay in full or keep rolling every year or so into something 0%, via balance transfers. I haven't worried about interest or that situation for many years.

CC companies are a neccesary evil, unless you are that much in the black, which of course would mean you have nothing much to say about this anyways.

If you have to file paperwork....you should go back to school....or pick up a book.

Just a comment.

cam5860

The only way to stay ahead in the credit card business is to only deal with big banks. Like my two favorites bank of america and citigroup. The reason for this is number one you will get the best deals and rates on there cards because they can afford to do it. citigroup has a trillion dollars in assets and bank of america has around 800 billion in assets. Citigroup is by far the best bank to do business with in america. They give me a platinum select credit card which is there best card which i qualify for because my credit score is 750. On it they give me 2 years at 0% interest after that 6.99 % for as long as i own the card long as im not late on payments over two times. Now a lot of companies never stick by they deal on the 0% interest after a few months they will start charging a little bit of interest and keep raising but with citigroup you will get two years and not pay a single penny long as you don't have a late payment. Plus when you open a account with citigroup they send you a radio which is decent considering it is free. Plus they send you coupon books where you can save 10 to 15 % on stuff from good places like bestbuy. All in all you can't beat citigroup for what they offer.

dorokusai

I'll add that another simple way to stay ahead, is to pay attention.

madmax

As I started out, cc companies try to suck you in. I have no pity for them whatsoever. At close to 1000 per year I'll play with them but I know how they are. So long as you owe them nothing they are as nice and polite as you could believe. I have one where I missed a payment and they happily removed the $39 late fee and returned my interest. Keeping up with it as I do I made the mistake of taking the next bill out of the loop because I wanted to check it out to make sure I was refundede. Guess what happened. I forgot about it and ended up getting another late charge and finance charge. At that point I just said to myself it's my fault and I was not going to even call them. Two days later I got a letter saying they noticed I had not paid again and they were going to wave all charges. Yes, it was a warm fuzzy feeling, and they did what they said they would do. I have a friend who got behind and on his third lack of payment they increased his interest rate to 29.37 percent and initiated some new policies where all of his other credit cards went up to the same percentage. He was pretty much effed at that point. He ended up cleaning out his 401K to pay all the cards off. That is why I say you need to know the concequences before playing this game. That is also why I used CD's rather than a mutual fund or whatever. You certainly need to be able to pay them off at the end of the month if something happens. In any case, the $800 profit was certainly worth the effort and risk.

One thing I found out about credit scores was that as you get more and more credit available your score goes down in the short term. The key is to have a lot of credit for the long term and your score will shoot back up. They get edgy if you seek a lot of short term credit. I recommend not canceling credit cards. The act of seeking credit brings the score down, keeping it allows the score to jump back up after a period of time. Just my experience. I have about 50 long term credit cards and last time I checked my rating (last year) it was very high. Only a few points from the top. I forget exactly but I think top score is 300 and I was in the 290 area?? Something like that. I'm sure at the moment it is down because I got three new cards last year and checked my rating. Every time you do that you get a decrease in points for some period of time. Hey, it was fun and paid for my McAlister tube amp.

madmax

dorokusai

Madmax - Don't formally request a "cancellation" just because of what your credit score may be next month? If you're in debt, and cannot afford to perpetuate the problem, how does that make sense?

Look, bottom line is, get some professional help if you can't figure out what means what in regards to your finances. Please, for the love of all that is holy, don't take advice to heart from this place....get educated about your own financial position and the ways to make smart decisions.

You can find such literature at your local library or bookstore.

shack

madmax wrote:

One thing I found out about credit scores was that as you get more and more credit available your score goes down in the short term. The key is to have a lot of credit for the long term and your score will shoot back up. They get edgy if you seek a lot of short term credit. I recommend not canceling credit cards. The act of seeking credit brings the score down, keeping it allows the score to jump back up after a period of time.

Trust me Max....this is NOT the way it works. EVERYTHING is used in computing credit scores. A big factor AGAINST you is number of credit obligaitons and amount available. A credit score is not just about history...it is about probabilty of future performance. Some of the lowest credit scores I have seen had NO late payments at all but large amounts of unused credit. The credit system/score you referred to is rarely used anymore. Beacon and Fair Issac systems are much more common and the best scores are in the 790+ range. Based on your advise, you would be very suprised at the makeup of the highest credit scores.

madmax

I guess if you have no control over your spending you would be better off cancelling the card but I don't see how that helps your credit score any more than just not using the card any longer. I'm no expert by any means, maybe I'm missing something. I do know that having around 50 or so cards is not hurting my score. Not arguing, just don't understand the premise.
madmax

madmax

shack wrote:

Trust me Max....this is NOT the way it works. EVERYTHING is used in computing credit scores. A big factor AGAINST you is number of credit obligaitons and amount available. A credit score is not just about history...it is about probabilty of future performance. Some of the lowest credit scores I have seen had NO late payments at all but large amounts of unused credit. The credit system/score you referred to is rarely used anymore. Beacon and Fair Issac systems are much more common and the best scores are in the 790+ range. Based on your advise, you would be very suprised at the makeup of the highest credit scores.

OK. So what am I doing right? I have an average of $7K per card, several with $19K or so. I'm not saying you are wrong, just seems if that is the criteria I would have a problem? I don't make nearly enough money to actually pay off any unnecessary debt.
madmax

dorokusai

A cancellation or cease of use letter sure would come in handy in a formal dispute.

shack

Max, if you have 50 active credit cards with limits of $2,000 each that is no different than owing $100,000 on credit cards as far as credit scoring is concerned. If you have 50 cards your score is lower than what it could be. You are looking at one isolated instance where it appears YOUR situation is not affected by the number of cards. No matter how is appears, 50 cards is adversly affecting your credit score. Other factors may be propping it up. I may not be an "expert", but I've been dealing with credit for 28 ± years and I know how it works.

madmax

I can agree with that doro. I thought we were talking scores with no problems. I don't know, maybe their joking with me on my scores? I check once a year just to make sure my identity hasn't been stolen and that mistakes have not been made and last year I was looking to re-finance so I checked again. There are like 3 beureas (sp) that report. They make it pretty clear what a low, medium and high score is. ??? I certainly don't have anything more than time and history.
madmax

madmax

Shack, at that rate it would look like I owe about $600K including the house. I'm sure the score would be a red flag. Lets see, it would take me at least 7 times my salary to pay that off in 30 years. Ha Ha. Stuff like this is too complicated for rules of thumb I guess. Just like what is the best investment I could make. It's different for 100 different people you interview?
madmax

madmax

Just for the record, back in 87 I started collecting cards as a hobby. That was because previous to that I couldn't even get a sears card because I had no credit history. Once I got a sears card I got tons of offers. By 91 when I bought my first home I had about 30 cards. Wasn't an issue. The next few years I added another 10 or so and got tired of the exercise. I certainly don't make much money. So what is going on? Maybe some rich dude stole my identity back then? Aw, who knows.
madmax

shack

Max I don't know what you actual credit score is so I can't really evaluate it. Maybe it is not as good as you think it is. Maybe it is.

The credit card business is a little on the frenzied side right now and it is a #s game for the time being. In some cases the criteria for "pre approval" is not necessarily based on credit scoring. There are other factors they use to determine how much they can make from you. If they can generate enough revenues they can can accept losses in a "reasonable range" so the more active cards they have the better. Why do you think Capital One spends so much on advertising? Also, CC companies make money on both sides of the transaction. The merchant pays fees to when you use a CC. Just another reason for the CC companies to have as many active cards as possible.

Other lenders have other criteria. Most mass market lenders use a grid system that takes into consideration credit score, debt ratio, loan amount to value of the colateral and so forth when determining rates and credit approval.

As far as a "red flag", based on the information just posted in this thread, the chance of me lending you any money with that amount of credit availability would be slim. Other factors might sway me...

madmax

All I can relate is experiences. You request the info and they send it to you. Certainly if I charged even one card at the $20K mark I would be hurting... bad. Maybe one indescression and it all goes away for a lifetime. For me I have a little more than 20 years history and a somewhat low income for the area. Nothing else to my knowledge. My finances are pretty simple. I've always paid at the end of the month except for a few low times. Maybe $500 interest in a lifetime. I don't know of any other factors. I don't even think they look at employment history although I've had the same two jobs (my real one and a part time one I use for audio) since about 86. Oh, and a simple mortgage which ended up with me not re-financing. You got me. Maybe simple is the key?
madmax

shack

You may be the "exception" to the rule....

madmax

You know, I thought about it more last night. Today pretty much everyone I know owes WAY more than they can afford for housing, and has to have a few new cars and owes more than they can pay for on CC bills. I only owe about a year and a half worth of salary and generally owe nothing. That could possibly be an exception. It doesn't really explain why I got the loan to start with though. This credit stuff is crazy! I still think the CC card companies are going way over the line with the enticements but I really enjoyed using their money.

madmax

faster100

Credit card companies arent the devil, although they can be if you slip up. We have a few low dollar cards just to "have" a history.. and build credit... I wish they were paid off though as i hate oweing..

On a side note,

MAX,

why would you have so many CC's ? I did read the whole thread also.. Its very interesting to me to read from people who know what's up.. I have learned alot but still have alot to learn on this stuff so keep this info flowing. It does help for people who actually admit they don't know it all.. about credit

Thanks guys,

shack

anonymouse wrote:

Then they laugh all the way to the bank.

Actually, most of them are the bank.

Demiurge

I only use credit cards for keeping the score up. Pay off everything at the end of the month. I don't spend money I don't have, but things can always come up. Always good to have a good nest egg of cash you can fall back on when things come up.

PolkThug

An excess number of cards you have active does lower your FICO score. I suggest that anybody who is curious for a good explanation of what is raising or lowering their score get a full report from equifax.com. (around $13) Even insurance companies are looking at FICO scores now.

faster100

I love it how people act negative like useing a credit card is a bad thing.. why have them if you don't use them? Not abuse but surely use them.

BlueMDPicker

shack wrote:

Trust me Max....this is NOT the way it works. EVERYTHING is used in computing credit scores. A big factor AGAINST you is number of credit obligaitons and amount available. A credit score is not just about history...it is about probabilty of future performance. Some of the lowest credit scores I have seen had NO late payments at all but large amounts of unused credit. The credit system/score you referred to is rarely used anymore. Beacon and Fair Issac systems are much more common and the best scores are in the 790+ range. Based on your advise, you would be very suprised at the makeup of the highest credit scores.

I haven't borrowed money in many years, and recently decided to open a home equity line of credit with an eye on using it for house related inevitabilities (roof, driveway, etc) versus savings. I have two credit cards with limits of $15K and $20K respectively -- neither has ever had a month-to-month balance. I have no outstanding debt, save my home mortgage. I've always considered my credit rating to be "perfect".

As part of the application, the bank sent me the credit score they used. They use the FICO score, and the FICO score uses a scale from 300 to 850 where 661 or 681 is very good. Mine was 828.

When I went to closing on the line of credit, I asked the bank (out of curiosity) why my score was 828? They said the only reason it wasn't "perfect" was the potential for indebtedness with the two credit cards! I received the best rate they offer on the line of credit, but I had honestly never thought about just having two cards in my pocket being a "bad thing".

faster100

That's outstanding Blue, although i'll assume you have had many years to get to that point and great self control

we are working on it, but this day and age its hard for the mid to lower income family to be debt free and on top. even with self control which we sometimes lack.. I can admit it

dorokusai

madmax wrote:

I can agree with that doro. I thought we were talking scores with no problems. I don't know, maybe their joking with me on my scores? I check once a year just to make sure my identity hasn't been stolen and that mistakes have not been made and last year I was looking to re-finance so I checked again. There are like 3 beureas (sp) that report. They make it pretty clear what a low, medium and high score is. ??? I certainly don't have anything more than time and history.
madmax

OK, I may have been reading that incorrectly as well.

I think you are doing way more than most. We also check our credit at least once a year, it's free anyways...isn't Maryland great

dorokusai

anonymouse wrote:

CC companies are the devil. Most of them have a "Change in Terms" department. This department is responsible for figuring out how to subtly or overtly change their terms and send you a little mailer in fine print along with your statement that is statistically engineered to extract more in interest and junk fees from their consumer base. They know that most people just throw those attachments with their statements in the garbage and never read them. Then they laugh all the way to the bank.

What this industry needs is legislation similar to the mortgage industry where all loan terms are standardized on a good faith statement, even when the terms change. Of course, their lobbyists in Washington would never allow that to happen and our politicians (from both parties) are too weak to take a stand.

What the industry needs or will be afraid of is a self aware consumer. I just love this pass the buck attitude of no responsibility.

ND13

I had a customer, last summer, that was a partner at the largest law firm in Indiana. He made a shitload of money, lived well below his income level and had never been late or defaulted on anything. Be cause he had a line of credit for $1 million(0 balance) and another million available in credit cards, his score was only a 673. He would have easily had a 740+ if he'd just cancel some of those unused cards and shutdown the line of credit. It really scares creditors to see that someone could go out the next day and charge $2 million if they felt like it.

The majority of lenders have some sort of tiering system that determines what your rate will be. Most will give you an A tier for a 700+ score. A few will even give you a better rate if you're a 740+. In my area the average score on Equifax is in the low 600s now. Trans Union seems to be just slightly higher.

I can't remember which is which, but one is more installment driven and the other is more revolving driven. I have seen as much as 118 point difference between the two scores, which, IMO, means that they need to be revamped. The bureaus aren't very accurate and if you're fairly active in your credit usage, I'd suggest checking your reports at least twice a year for inaccuracies and fraud.