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App-o-Rama

Why? That has to be the first question answered.

DaveHanson My general rule of thumb on a BT I want to “milk” is to pay the minimum + $1 each month (which has to be done manually). That way, no one who’s tracking my payments will see any “minimum payments” flag go off. I don’t have hard evidence of how many issuers do this, or in what cirucumstances, but I have heard this happens from time to time, and it seems cheap insurance.

According to the App-o-Rama Blog:

The richest people in the world make money using other people’s money, and this is a simple way for the “common man” to do it.

Definitions, FAQs, and Assumptions

What I learned from elsewhere that inspired me to do an App-O-Rama.

Definitions & FAQ

Assumptions

In my case, for #2, I always make sure that I round the minimum amount up to an even multiple of $25 so that if my balances on any cards aren’t a nice round number, I know that there’s been some activity (finance charges? late fees?! fraudulent charges?!?).

A few things I do to avoid spooking the powers that be: 1) Pay bills as soon as possible…don’t wait until the due date…pay them immediately. 2) Pay more than the minimum amount.

From DaveHanson at Fatwallet ;) Partial Utilization doesn’t sacrifice much.CreditGuy said:

What happened to me was that (about 2 years ago) heavy usage put my overall utilization over 50% and over 70% on several cards. As a result, one bank where I had 5 cards got spooked, closed four of the five on the spot, and reduced the credit limit on the remaining one....About a month after that...my MBNA account was closed. I'd had it for 12+ years at the time, it hadn't been used for a couple of months, there was zero balance due, and the credit limit was $24,600. A few days later I got a 2.9% balance transfer on that card in the mail with a letter from MBNA saying I was one of their best customers. I have NEVER been late or overlimit or not obeyed the rules with any creditor.

Frankly, these bank actions both annoy and puzzle me. I've been trying to figure out what touches them off and devise methods to prevent such things from happening. I haven't found any clear reasons for the actions or any way other than what Dave Hanson suggests--keep all accounts <50% as well as overall utilization <50%. But that, to repeat myself, leaves so much free money on the table!

First, as your post suggests, the obvious conclusion is that your high utilization compromised your opportunities here. I’ve discussed in other threads why sticking to a partial utilization strategy isn’t leaving as much on the table as one might think, especially if one is in this for the long haul.. Here are some reasons why.

  1. It prevents nasty credit card/line surprises. Several FWers have had accounts not only reduced, but CLOSED because of their high utilizations. We have every reason to believe that this is a growing trend, and will get worse as other companies use it as a loss mitigation strategy.

  2. It allows for larger lines more quickly. People get automated line increases all the time. They get them more regularly and more rapidly, however, when their credit stays in prime territory. And when those increases are granted, future tasty offers (like FBB’s incredible rewards card balance transfer deal from last year) become far more exploitable.

  3. To keep one’s options open. Say you get an offer you can’t refuse for your house, and you want to sell and buy another one unexpectedly. Or suppose you’re a RE investor and you want to snap up a new property. Whoops, getting a A+ loan might be a problem if your lines are maxed and credit trashed. Or, suppose there’s a blazing hot credit deal or promotion that comes along for a temporary period that requires A+ credit. You’ve just excluded yourself from the chance to take advantage of it. Real example: because my credit was excellent during the two month period they offered it, I got 1.9% fixed HELOC for a year from Penfed.org , with no fees, savings me thousands in just one year over other alternatives. That offer is long gone now, and I never had reason to foresee it in advance. Another example: we had a limited chance to get a $50K credit card with a rate of prime + 0 for EVERYTHING (cash advances too) and no fees through a private banking arrangement. We didn’t see it coming, and needless to say we are very glad we could grab it. Another example: Capital one’s tasty solicitations for no-hassle cards have been going to “super-prime” customers only. You have a shot at getting one if your utilization isn’t too high, and if your other data looks good, but no chance at all otherwise.

For these reasons among others, the actual loss of holding down utilization, over time, is not nearly half of the funds one could get maxing out BT offers, but MUCH less than that—especially as one’s credit lines increase (and thus, BT fees become an increasingly insignificant factor in the calculations.)

But wait, there’s more….

  1. It also prevents nasty NON credit card surprises. Suppose your insurance carrier checks your credit during a high-utilization period. You can bet your rates are going up, perhaps sharply. What if you’re moving or laid off and applying for a new job? Your prospective employer might well turn you down after a credit check shows you’re near-maxing out your lines. I know that I couldn’t even get a brokerage account approved when I had a below 600 dip four years back. These scenarios are real, not fanciful; they happen ALL THE TIME. They cost money, but also real opportunities, and they add hassle and stress.

Preparation

Everything done to get ready for the App-O-Rama

Links

Information

Credit Cards

Other Links

Credit Reporting Companies

Some of these links may contain affiliate links. If I learned of the link from a site, I left their affiliate link in place.

Online Banks

Implementation

The process of actually submitting all the applications for new credit

You need to organize your time so you can do everything before new accts start popping up. Assuming you set aside a conservative 30min for phone apps, to allow for hold time, you should be able to fit some in. I think some people use Roboform to quickly do the online apps. 50 online apps in 4 hours I have read about. Some banks can report quick, say within 24-48hrs. Most take more time however. If a bank waits a few days to pull, and sees new accts, your score will be lower, than if they just see alot of inquiries. My next AOR will include some phone apps, as there are some very good banks that only offer phone applications

Maximization & Balance Transfer Arbitrage

Finalization

Where things stand after all is said and done.

Taxes: As interest rates rise, 0.99% or 1.99% might start to look good as well when you can make 5-6% at the bank. But remember, you pay taxes on the bank interest, and you cannot deduct credit card interest. So if you make 6% but are in the 25% tax bracket, you end up with 4.5%. If your credit charges 1%, your profit margin is 3%. Still not bad depending, but perhaps you could do better elsewhere.

Update: Interest charged for money used for investment purposes can be tax deductible if you document it properly. So in my previous example if you the bank is paying 6% and your credit card is charging 1%, if done right you can deduct the 1% on your taxes and get taxed only on the 5% margin (3.75% net if taxes are 25%).

Comments and Lessons Learned

What I learned and would do different if there is a 2nd App-O-Rama.

  1. A-M
  2. N-Z

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