Easy money?

[vanillabean]

I had to dig deep into a once read book, but did find Liz Weston's take on zero percent jockeys, or credit card arbitragers as she also calls them, from the chapter entitled Get the Most Out of Your Credit Cards in her book Easy Money.

It's about ways to benefit from the difference in interest rates and may not work for you if you pay the smaller balance cards before the high interest cards or if you pay off your 4% tax-deductible mortgage loan before purchasing your favorite ~10% company stock for your Roth IRA. It will not work for you if you act on impulses rather than being organized and in control.

Because of the various loan interest escalation, I was reminded of the formula for compound interest. For instance the yearly rate for a loan with 1% interest per month is approximately 12.683% (1.01^12 − 1), not simply 12% of course. If over 100 months, $100 grows to not $200, but rather $273.

An entertaining myFICO forums thread with the subject line of, you guessed it, easy money, from 2008, asked this question: assuming I open a new credit card with a credit line of 25k at 0% for 12 months. I take a 25k cash advance and put it in a high yield cd. After maturity I will pay back the cash advance and keep the 1000 in interest. How detrimental would this manuever be to my current 775 credit score?

We know now that a maxed-out card takes a 780 score down 25-45 points. That doesn't actually sound all that bad, but Amex may object if they happen to soft you. Having a card with a util higher than 30% for a full year may feel uncomfortable to me.

The whole thing looks appealing on paper, but you have to wonder if such a scheme sits right with you. If the easy part means doing the mere administration of a given opportunity, no real work needs to be done. When it feels like piggybacking, it's probably because it is, especially in cases when your money is not actually invested in the project. And the overall risk not to be ignored is plentiful, while the overall profit margin may be slim.

Has anyone pulled off easy money that wasn't overly harmful to your score?

[RobertEG]

The credit inquiry associated with the new card would be the least of the impact.

First, an immediate hit on AAoA that will live forever

Second, a new TL less than one year.

Third, a revolving acct at or near 100% util for a year.  Hit on overall % util, and an even bigger hit on individ card % util

Fourth, a card that will perpetually, for that year, carry a balance, increasing your % revolv w/ bal

Fifth, creditors arent all stupid, and will see what is being done, and may consider that in their future decision-making

They will most likely find a way not to shell out "free money."

Repeating this pattern over and over would compound the harm.

[tcbofade]

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@Anonymous-own-fico wrote:

An entertaining myFICO forums thread with the subject line of, you guessed it, easy money, from 2008, asked this question: assuming I open a new credit card with a credit line of 25k at 0% for 12 months. I take a 25k cash advance and put it in a high yield cd. After maturity I will pay back the cash advance and keep the 1000 in interest. How detrimental would this manuever be to my current 775 credit score?

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Um.  There may be exceptions, but generally, the zero percent deals are for balance transfers and purchases...NOT cash advances...

[Anonymous]

+1 tcbofade.  For most cards, once you get a cash advance, you will be hit with interest charges immediately.  Credit card companies aren't going to let you profit off them that easily because they are designed to profit off of you.

I don't think it's worth all the FICO score damage to make some interest in an account.  I would rather take longer to save up money, invest wisely, and watch my funds grow.

[pizzadude]

Yeah I also have never seen a 0% promotion that includes cash advances.   Maybe they exist, but I would be somewhat suprised.

Lots of people have try to game the system to get around this by, for example, purchasing large amounts of currency via the US Mint, etc...    Most of the time it comes back to bite them.

[atarvuzdar]

I think what the OP is referring to are those checks that sometimes are sent to you from CCC's that allows you to write checks on the account. This was a common practice several years ago--people would put the money into a high-yield acct and make a couple hundred dollars off the money while paying back the CC balance before the 0% interest was up. I believe Liz Weston cautioned when she spoke about this back then that it was NOT for those people who were concerned about their credit score for that year and a few years after, due to the high balance, new account, AAoA hit, etc. It's not so easy to do this nowadays because, as has been suggested by prior posters, the CCC's got wise to this and don't offer deals as sweet as they used to be these days.