Leveraged Credit -

Correlation between credit score and credit card balance

shig — Thu, 03 Jan 2008 11:08:59 -0600

MM posts on PFBlog about his year of 0% arbitrage where he borrows money from credit cards at 0% APR and makes money by putting it in a savings account. He also posts a graph showing the correlation between his credit score and his credit card balance. It's interesting that after the one year of keeping a high balance, his credit score has actually gone up. Here's a screenshot of that chart.

Chase United offers not only valid for first-time cardmembers with new accounts

shig — Sat, 22 Dec 2007 12:51:40 -0600

United OfferThis is what the offer looks like for the United Mileage Plus card issued by Chase. Their promotion is that you get 21,000 miles after you make a purchase using the card.

Back of offerIf you look at the back of the offer, they say, "The bonus offer is valid only for first-time cardmembers with new accounts."

United Mileage Plus activityHowever, I've found that they do not enforce this. I've received the ~ 20,000 miles from them 3 or 4 times. Here is my United Mileage Plus statement for the year showing that I received 20,500 points in February and then 21,000 points in December

First Equity, false advertising and thanks but no thanks

shig — Fri, 21 Dec 2007 12:15:12 -0600

ApplicationI received this credit card application from a lender called First Equity a couple of weeks ago. The letter featured an APR "as low as 0%" and it was a new lender for me, which I figured could open me up to a new credit stream, so I applied for it.

EnvelopeHere is the envelope that the offer came in. Note that it says both, "pre-qualified" and "0% APR" on it and not "as low as 0%".

Credit card termsThen, yesterday I received the card along with the terms - $3,000 credit line with a 20% APR. I know that when they say "as low as 0%", that means it could be anything above 0% but the actual terms that they gave me are pretty unattractive. Plus, stating "0% APR" and "pre-qualified" on the envelope is clearly a way to get me interested and then perhaps overlook the "as low as..." bit that's actually contained in the offer. In my opinion, what's printed on the envelope is inaccurate and is false advertising. Guess I'll just put this one in my file cabinet and close the account in 6 months.

Chase is handing out a lot of offers

shig — Wed, 05 Dec 2007 21:30:04 -0600

I've been getting a ton of offers from Chase lately (I know that it's the holiday season, but the number of offers I'm receiving is just ridiculous). I'm curious as to whether this is their business strategy or if they just don't have the proper measures in place to ensure that a single person doesn't get a ton of offers. Are they trying to get me to sign up for as many accounts as possible? Or are they not aware that they sent me 3 offers for the Amazon business card?

In the past 3 months, I've gotten 3 0% APR offers, which I've taken advantage of and 3 airlines miles offers (2 for United and 1 for Continental).

I've already gotten 21,000 free miles from another United offer this year as well as miles from an American Airlines card, which as I recall correctly was also issued by Chase.

Some credit card companies look at the rate of turnover of your accounts and how many accounts you've opened in your recent history, but I'm guessing that those aren't important factors for them.

Update: I applied for my third Amazon Business Card and was turned down due to having too many accounts already open even though they sent me a direct mail offer.

Using Google Calendar and a spreadsheet to remind you of payments

shig — Thu, 22 Nov 2007 16:09:30 -0600

It's very important to make your credit card payments on time or else by most credit card terms, you'll be giving them carte blanche to jack up your APR to a considerable rate (usually above 25%) not to mention the negative effect it can have on your credit. What's also important is paying off your balance before your 0% APR expires at which point, your APR will jump up to the Prime Rate plus a rate (9.99% for many Chase cards) designated by the issuer, which generally means 18% or higher.

I use two tools to make sure that I don't falter on either of these. The first of these is a calendar. Any calendar that is able to provide you with daily reminders would work (including a paper calendar if you look at it every day), but I use Google Calendar.

Click for larger
For each card I have that has a balance, I add a monthly recurring reminder to make a payment several days before it's due. Since I use Google Calendar for my work, I check it daily to see what's on my agenda for the day. However, if you're not someone who checks their calendar every day, you can tell it to send you either an SMS or e-mail reminder.

Click for largerThe second tool I use is a spreadsheet containing information for all my accounts including the APR, when the promo APR expires, annual fee and roughly what the balance is. I check this spreadsheet every time I make a credit card payment (which, of course I'm reminded of by Google Calendar) so that I know that a 0 APR might be ending soon. This way, I know to transfer money back to my bank account so it's available to pay off an entire balance when it needs to be.

How to receive the most amount of credit

shig — Thu, 22 Nov 2007 16:02:07 -0600

I don't work in the lending industry, so I can't tell you exactly what goes into the formula when calculating how much credit to extend someone. However, I can tell you what I've found to work well for me and my hypothesis for each of them.

Don't carry too many high balances. A credit card representative told me this once, but one of the numbers they use in order to calculate how much credit to give you is the percentage of your total available credit that you're using. If you have $30,000 in credit but have acted on $29,000, the lenders will see you as being high risk for not being able to make payments. What I do is keep a large number of accounts open so that my available credit is significantly higher than what I'm acting on.
Don't close accounts too hastily. It is a myth that having a lot of credit cards lowers your credit score. However, closing them does, especially if they've been open for only a short period of time. Credit card companies will also see the short account-open times as being a sign that you're taking advantage of their introductory offers. It's also good to have accounts that have been open for a long time, since that is a sign of stability. I generally keep the accounts that have a high credit line and those that I've had for a long time. I do occasionally close accounts, but I make sure that they're spread out over time.
Keep your credit report clean. This one should be obvious, but make sure you don't add any marks to your credit report. This means paying your cards on time and steering clear of collections agencies.

Why should you leverage your credit?

shig — Mon, 19 Nov 2007 11:54:27 -0600

Everyone is worthy of credit of some amount. An 8 year old with no income could potentially borrow some money from a lender if they think that the risk is worth the potential return.

As I've gotten older, my credit lines have increased and the lending terms have gotten more attractive. Credit card companies think that they can make money from the interest that I would potentially pay if I become a regular user of their credit card. For that reason, they are willing to offer me some incentives to sign up for an account. The incentives I capitalize on are 0% APRs and bonus airline miles.

If I receive a credit line of $10,000 with a 0% APR for one year and I want to invest that money with the absolute minimal risk, I would put it into my ING Direct savings account and earn 5%, which comes out to $500 a year or $41 per month (enough to pay for your internet connection, a cell phone bill or maybe a few dinners out).

Credit card companies associated with airlines mileage programs generally offer 20,000 miles after your first purchase. Domestic flights are usually 25,000 miles, so you're almost getting one domestic flight for free.