Credit Card Tricks

Credit card companies don’t like me.  Now, don’t get me wrong, I pay my balance by the due date every month, but that’s why they don’t like me.  The credit card industry does not earn hundreds of millions billions yeah, tens of billions of dollars in annual profits from those who pay their balance in full each month.  Their preferred clientele, ‘the sweet spot’, are those who carry a balance and pay only the minimum monthly payment.  Almost with theatrical stereotypes – a villain fronting as a white knight to seduce an innocent maiden, only to reveal his true identity after the relationship has begun.  Stay away! Don’t do it!  The audience yells.  Would I be out of line if I made a parallel between a drug-pusher who offers naïve ones free candy for a time and then when it’s too late and the prey is hooked, the dealer begins to collect his dividends?  That might be a little over-the-top even for me.  After all, it does take two to tango and we are all adults.  Therefore, this article will not be about “just say no”, but rather, how to turn these tables around.  The credit card trickster becomes the credit card trick.

I received a wonderful credit card offer today: zero percent interest for the next fifteen months.  As if this wasn’t enough, the deal also includes a $100 Home Depot gift card and no balance transfer fees.  Let me go on record by stating that this is absolutely a GOOD DEAL.  Unfortunately, at the same time, it’s a potential trap – one that could cost an unsuspecting consumer dearly.

The disclosure reveals that the rate may change.  Or more accurately stated, the rate WILL change if the creditor finds justification to do so based on any of the following:

These reasons may be based on information in the Business’ or your credit report, such as failure to make payments to another creditor when due, amounts owed to other creditors, the number of credit card accounts outstanding, or the number of credit inquiries.

Dale always says: “eyes wide open” in every transaction.  You’ve got to know what you’re getting into.  That ‘breathing easy’ zero percent can easily become a suffocating 32.24%, and the very fact that you have a new credit card opened at its high credit limit may be the driving force that propels your rate into the outer limit.  But as I’ve told you already, don’t run away.  We’re going to turn this thing around, and in so doing, give the credit card companies their just desserts.  Now I don’t feel bad about this one bit.  If a credit card company – making billions of dollars in profits – wants to offer money at zero percent, then I say terrific!  Let’s take back some of their profits.  Here’s what you need to know.

The danger is in having no options.  Let’s suppose your credit score was a 750 and you took this offer and transferred $40,000 in debt onto this credit card at zero percent.  Then, something tragic happens, your score drops, and the default rate of 32.24% kicks in.  Suddenly, you went from paying zero interest to paying $1,074 in interest per month.  This would be a serious problem, particularly if you have no options.

The key to winning this credit card game is in the proper use of a home equity line of credit (HELOC).  If you own a home and have a decent FICO score, then there’s no excuse for not having a HELOC.  A HELOC will be a variable rate of prime (currently 8.25%) or prime minus one percent (currently 7.25%) and there are NO CLOSING COSTS (and therefore no excuses for not having one).   A big mistake that homeowners make in obtaining a HELOC is in not obtaining the HELOC for their home’s full value.  This is essential to maintaining your credit utilization ratio, which comprises 30% of your total FICO score.  In other words, if you qualify for a $100,000 line of credit, but only need $40,000 – get the full $100,000 line of credit anyway.  The line of credit is your safety net.  The line of credit does not have a ‘universal default’ policy as is common (and described above) with credit card agreements.  Furthermore, the HELOC enables you to outwit credit card offers in their attempt to lure you with their introductory rates.  When the introductory rate is about to expire, transfer the entire balance to your HELOC.  A week later, call the credit card company again to ask if they have a promotional rate on a balance transfer.  What a surprise!  They want you back and have a ridiculously low introductory rate to offer you once more.  In addition, your other creditors see that you are able to pay your balances off with ease and they raise the credit limits on your other credit cards – further improving your credit utilization ratio and raising your credit score.  This is how you play the credit card game and win.

Didn’t I tell you?  Don’t you remember?  Credit card companies don’t like me.