Supplemental Income Via Credit Card Leverage

[night_rider]

I've recently begun reading a thread over at Fat Wallet that I thought might be of interest. Fat Wallet is based in the US but the principles could be applied in other first world economies I would imagine. The nice part of it for the expat is that it keeps your credit active in your home country.

What people are doing is taking advantage of lags in the credit reporting system in the US to apply for multiple credit card applications (20+) within a 24 hour period. Because each of these companies is viewing essentially the same credit data at the same moment in time each is considered without the knowledge or risk assesment of the others. This often results in multiple approved applications and new credit during this one run of $100k-$200k. The applications may either yield rewards in the form of points that can be converted to cash or iPods or cash through third party marketing arms. These rewards will often be north of $1000. per run. Applications may also be targeted to those companies offering 0% balance transfer deals for a year without transfer fees. This $100k-200k in new credit line is then leveraged and deposited to a liquid account yielding 5.25% currently adding another $5000-$10,000 in capital gains. Finally a payment mechanism is devised between the accounts to ensure timely payments of the multiple accounts so they remain in good standing throughout the term of the balance transfer terms.

Those doing this report an initial 50 point drop in their credit scores due to the multiple bureau inquiries and perhaps another 50 point drop when the new accounts are reflected on their bureaus with the new balances. The inquiries are healed from your credit score within a year and the balances soon after they're paid back. You're definately leveraging your credit score for this and would not want to do so if applying for a home/car loan in your country of origin w/in the next 6-12 months.

Seems if you left your country of origin with good credit you might leverage that for some extra income (B400k-800k per year) with a modicum of accounting finesse and a bit of strategy. As an extra kicker it keeps your score active while you're abroad. The income is further leveraged by living in LOS where such a sum goes even further.

[samran]

So where does interest charged immediately on cash advances come into this equation?

18% credit card interest per year - 5.25% savings interest = still a h3ll of a lot of interest.

[night_rider]

So where does interest charged immediately on cash advances come into this equation?

18% credit card interest per year - 5.25% savings interest = still a h3ll of a lot of interest.

There is no interest. In the US all major credit card issuers are offering 0% for one year and many with no transaction fees. For instance in January I opened a Chase card and paid off another credit card with the Chase. My Chase balance is at 0% till next January. I've not paid Chase one dime to date.

What folks have discovered is a hole in the credit bureau reporting system that card issuers depend on to determine your credit worthiness. By applying en masse they can get approved for 100k-200k in new credit that they can use without any cost for a year like my Chase account. They then drop that into a guaranteed account, pay the minimum due each month for a year and the balance just before the 0% is up. Essentially they benefit from the interest off of free money but the 'hole' in the credit bureau reporting process makes it worthwhile because they can leverage sums far greater than they could reasonably expect approval for.

One note, I tried to edit my original post. My conversion into Baht was miscalculated. You could reasonably expect $5k-$10k in interest income off doing this which should be 200k-400k Baht not the 400k-800k I originally typed.

The whole things a little scammy but using the system to my advantage appeals to me.

Edited August 4, 2006 by night_rider

[Inspector 2211]

There is no interest. In the US all major credit card issuers are offering 0% for one year and many with no transaction fees. For instance in January I opened a Chase card and paid off another credit card with the Chase. My Chase balance is at 0% till next January. I've not paid Chase one dime to date.

I believe this scheme could work - the only (minor) problem I see is that you need to maintain a U.S. address and need someone in the U.S. who actually does all these transactions for you (assuming you are staying in Thailand).

Also, if you have no income other than from this scheme, you'd either need to inflate your yearly income on the credit card applications , or apply for a heck of a lot of cards, because with a low income the card limit will be quite low, too.

Also, keep in mind that the cash advance limit is substantially lower than the limit for purchases, usually it is only about 20% of the limit for purchases. Thus, even if you get enough cards that the combined purchase limit is 200 grand (achievable by applying for all cards at the same time, I think), the cash advance would be only about 40 grand, and the yearly interest from that a mere 2 grand. Hardly enough to finance a permanent stay in Thailand (well, maybe in Isaan ).

I personally have three Chase cards and several other cards, but do not use them for cash advances, rather for business startup expenses, in a "laddered" fashion to avoid interest charges.

I.e. the cash flow that the business generates pays off the "oldest" card while new purchases are charged to the "newest" card.

Oh, by the way, there are these rumors about people who apply for lots of cards in the U.S. and then move to Thailand, abandoning their debt in the U.S.

Once I read that credit card companies will simply walk away from any debt less than 10 grand, because the cost of debt collection would exceed the debt itself.

Did anybody on this board do that?

What's your experience with that, so far?

(I have no intention of doing that but am curious anyway.)

[migrant]

Oh, by the way, there are these rumors about people who apply for lots of cards in the U.S. and then move to Thailand, abandoning their debt in the U.S.

Once I read that credit card companies will simply walk away from any debt less than 10 grand, because the cost of debt collection would exceed the debt itself.

Did anybody on this board do that?

What's your experience with that, so far?

(I have no intention of doing that but am curious anyway.)

I see quite a few people walk away from credit card debt. I'm a CPA and do quite a few personal, and business tax returns. The credit card companies seem to write off the debt fairly easily, I've had clients who told me all they did was call the credit card companies and tell them they can no longer make the payments.

This, of course, affects your credit. The credit card companies also send out a 'forgiveness of debt' notice to the IRS. This foregiveness of debt is income to the credit card holder, so if you still file taxes, or maintain property, in the US, you would be liable for taxes on this and if not filed the assets could eventually be levied.

[Phil Conners]

It sounds like fraud to me. I think most card companies have in their rules that if you get caught doing something like this they can close your account immediately .. and I think unless they are completely brain dead they'll put a nice little sad-face-sticker on your file for future applications.

Anyway, try it and let's know

[OneeyedJohn]

I believe it cannot be legally called fraud under 10K sterling, don't know for sure.

I recall before I left UK several suggestions being made to me on how to walk away with sums of money from credit cards ( I had lots ). This involved lease puchasing elite cars on a credit card then chopping it up and reassembling in Thailand, and various others all of which struck me as bad Karma for beginning a new lifestyle in a new country.

All depends on how desperate one is to make easy money.

[night_rider]

I agree that walking away from your debts is definately bad Karma. In the US you can be criminally prosecuted if you charge and run but if you charge, make six month so minimum payment and run it's less likely. Bankruptcy has more obstacles due to recent legislation that I anticipate many to simply walk away from the debt, take the hit to their credit and try again without ever entering bankruptcy counting on the corporations to just write it off.

Inspector the balance transfers can fully utilize the whole credit line unlike a cash advance so if you're approved for $200k you can drop it all into an investment vehicle at no interest for a year. In that first link many people are already doing it successfully.

I should explain that I work for a credit card company and find it fascinating how people will reverse engineer the credit scoring system for profit. I could find nothing either illegal or unethical about it. It is a federal offence to lie about your income on a credit app but the application en masse offsets the need.