A blog to share my thoughts about trading, frugal living, money and the economy. Occasionally I might even throw in a few things about better living, technology, futurism, and science but these are always in some way related to finances or speculation.

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Location: Phoenixville, Pennsylvania, United States

"I have become all things to all men so that by all possible means I might save some."

Tuesday, October 31, 2006

Card Tricks - Making Money from Credit Card Companies

By request I am elaborating on something mentioned earlier - that is, how I make thousands of dollars off of the credit card companies. First let me say that even though I don't think any of this is rocket science, it definitely is not for everyone, so be careful before you just blindly imitate me.

First the obvious - I have a primary card that gets me 5% cash back on gas, groceries, and drug store purchases, 1% cash back on everything else. I put everything I possibly can onto that card to maximize the everyday expense rewards and benefit from one month delay in paying for things (interest benefit). And of course, I always pay this balance off in full every month and use my credit wisely.

The bigger money though, comes from taking advantage of zero percent offers from the credit card companies. READ THE FINE PRINT: You have to play the game on their terms. You must look for caveats like transaction fees (you must have no transaction fee or a CAPPED transaction fee, you must make sure the 0% applies to the type of transfer you are doing (balance transfer or cash advance). You must also determine the EXACT date for which the loans must be repaid in full to avoid massive fees (and they do their best to trick you, so you REALLY have to get the correct date in writing from the company and set up a reliable reminder giving yourself enough time to move the funds around). You must NOT USE the 0% cards for ANYTHING while you have the loan (unless all purchases are also at 0% for the same timeframe). And of course you have to be organized enough to pay the minimum balances every month, I have an electronic reminder system for this Memo To Me - Free Reminder Service and pre-schedule all payments online, so it isn't a real big deal. For the time that I put into it, I am compensated at a rate >$500/hour.

I currently have more than $150,000 in zero percent credit card debt. And you should SEE the looks on people's faces when I tell them I have that much credit card debt! :) There are little tricks for raising your credit lines, managing your credit score, consolidating lines etc. You can find all of the details elsewhere on the net (fatwallet, app-o-rama, creditboards, etc).

SO this borrowed money sits in either money market accounts or CDs with rates of return currently from 5.15% to 6%. I'm making about $7-8k a year doing this, not huge, but enough to pay my property taxes and go on a vacation every year. The offers are probably better now than I have ever seen before, but it is a cyclical thing, I don't expect it to be this good forever, the deals will ebb and flow over time.

There is also the signup bonus cash, which can be considerable, and is yet another way I make money from the credit card companies. These offers seem more permanent. I've gotten anywhere from $50-$100 cash, airline tickets, ipods, and palm pilots (hocked on eBay). You can easily make a thousand or more from signup bonuses alone in any given year.

WARNING - it is important to understand these techniques in full before trying them. You should understand how your credit score will be impacted, and you should have a good idea of how a lower credit score might impact your own life (for example if there is a possibility that you will have to take out a mortgage or car loan over the next year, even job applications these days often pull a credit report).

I really could care less at this point in my life what my credit score is, I don't need credit to buy anything. But to tell you the truth, I haven't really trashed my score THAT much (I have no late or missed payments which is obviously important - but I do have high total utilization and lowish age of accounts which lowers my score). My score is still >700 and paying off the loans would bring it higher very rapidly. The fluctuating score is expected, and the score should generally be brought up significantly before doing mass credit applications.

NOTE: Temporary score "hits" will occur when you apply for credit, which is one reason it is best to apply for as many cards as you can at the same time because these hits take a few days to flow though the system. The score decrease from applications will reverse itself after a couple of months. It is important to understand that just having a lot of unused credit cards does NOT lower your score, in fact it generally makes it higher (because you will have lower total credit utilization) and most experts recommend that you NEVER cancel/close any credit card you own even if you do not use it (you can however move most of its credit line to another card).

Follow the links in this post if you want more information.


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