Credit scores and credit cards

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ILikeStilettos
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Joined: Tue Jan 28, 2014 3:36 pm
Location: Norman, Oklahoma, USA
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Credit scores and credit cards

Post by ILikeStilettos »

Credit scores and credit cards
(Playing the system that’s been playing you, or giving back some karma)

You’ve all seen the ads on TV that talk about your (FICO) credit score, how to raise it, how important it is, yada yada yada. They say it’s more than a number. They say it’s important. Basically, it’s all BS used to extract money from you one way or another. This post is aimed at people who manage their finances actively and who are not deeply in debt. If that’s your issue, watch one of the many Dave Ramsey videos on how to fix it. I’m talking to the smaller group that is pretty much debt free and staying ahead … note I didn’t say “within budget” as I don’t really have a specific one. Typically these are older folks (lots of those on the forums) and people who have self-discipline. Perhaps you’re one who says, “I never used credit cards, just cash for me.” That’s fine. I’m about to describe how I work the system, and how it pays me, not a lot, but steady. I think of it as free money.

In the past, the credit card companies put the screws to a lot of people and got them into debt in a hurry. What I do involves reading the fine print and then using it against the card companies. Quite honestly, this takes some time and effort and you really need some financial software like Quicken to keep it straight. You could perhaps do it with a spreadsheet, but that is extremely complex. It’s a matter of knowing the numbers and the timing, and knowing exactly where you are at any given point.

So, to get it out of the way, let’s talk credit scores first. If you are aware of them at all, then you know that a score in the 800’s means you walk on water. Anything lower is portrayed as shameful and dangerous and to be corrected immediately. Don’t believe it. First off, the scoring system rates you from about 300-850. That should be your first clue that something is fishy. If you were ever in the service or in an industry where your rating determined your pay, then you know the numbers are not a normal distribution. If you want to get promoted, get raises, etc., you have to score at the high end, being average gets you nothing. So everyone has to be better than average – but average is supposed to be a midpoint in all the ratings. Wherever the cutoff is between acceptable and not acceptable is the effective bottom of the scale, not the midpoint. With credit scores, this is around 600. So realistically, everyone who is managing their finances has to be squeezed in between 600 and 850, and the upper numbers are reserved for people who DO NOT USE THEIR CREDIT. Like I said: warped.

Without revealing my exact numbers, consider my wife and I. I worked 32 years on one job, have never missed a payment, have mortgaged and paid off a house and supported us for 30 years of marriage. My wife, when she worked, was always self-employed and barely made survival wages. We are both members of USAA and I log in every day to monitor things and I see both of our FICO scores. Mine is in the poor range and hers is in the excellent range, more than 150 points higher than mine. Why? Some of the accounts are only in my name, some are only in her name. I manage the finances and all the electronics, so regardless of who officially owns the account, I’m the one who set it up and manages it. Some she opened before I married her, but I’ve taken over the tracking. I’ll get to specifics later on, but just keep the relative positions in mind.

I almost never carry cash, or at least not more than $150 in emergency funds tucked away on my person. I might have $20 in my coin purse, unless we are going to a restaurant or event that is cash only. All utility bills, insurance, alarm service, etc. get paid by pre-authorized access to my checking account. Frankly, it would actually make sense to charge these items in some cases, but I like the convenience and knowing I don’t have to track those so closely. My electric and gas bills are on “even monthly plan” so there are no big seasonal hits. Everything else goes on a charge card, even the $.89 soda at 7-Eleven. Why would I do this? Well, my Sam’s card refunds 5% of my purchases of gasoline, and everything at 7-Eleven is classified as gasoline to Sam’s. It’s my built in rebate.

We eat out all the time; rarely cook. So if VISA is giving me 5% on restaurant, movies, home improvement, drug store, etc.; then I use that particular card for that service. One card gives me 2% on everything. By now you’re saying, “This is not for me, I’ll never keep up.” That’s where Quicken comes in.

Every account goes in Quicken. Charge an .89 cent soda? Enter the charge on that card. (This is really very easy as Quicken lets you repeat common items by copying them with a new date.) The slip (always get a slip) goes in a baggie. If I fall behind, I have a little box on the desk with slips. If my wife charges something, like a co-pay, it goes in the box for me to work later. Here’s the interesting part. I know my VISA bill is due on the 20th of the month. I have a transaction dated for the 20th, a future date, in Quicken, showing that I will pay VISA from the checking account. In the comments, it’s marked “fake on 10/20/2016”. When I get the VISA statement I reconcile it, checking off the open transactions and balancing to the penny. Often I spot double charges, fraudulent charges, charges where the waiter changed the tip, etc. I can find these because they stick out when I reconcile and I can get them corrected. When I make the actual payment I create a new “fake” for the next month and alter the previous one to say “electronic on 10/19/2016”. This is so I can tell the planned payments and the completed payments apart. I pay the cards on line, electronically. The only checks I write are for car tags, real estate taxes, etc. – because they charge a premium for credit cards, which eats up my rebate. I do however have Quicken enter those repeating transactions automatically 120 days before the due date. Quicken lets me look at cash flow and balance at any date in the past or future. My “budget” is looking at the cash flow page to see if I am where I need to be.

I mentioned that I pay electronically, but how much and when? Let’s say I owe VISA $457.26 due on 10/30/2016. If VISA allows, I pay $462.26 ($5 extra, or else the statement balance) and I pay it on the business day prior to the due date, 10/28/2016. I pay extra and I pay early. This takes advantage of the loophole where there are no finance charges when the balance is paid in full. It’s less than I owe them, just the amount they think I owed on the closing date. This is great for a credit score. They never get a dime in finance charges. Know what their insider term for this kind of customer is? It’s ‘deadbeat’. Note, USAA gives me free electronic payments. Most credit cards love to direct debit my checking account. Some need an actual payment, USAA handles this.
By using the features in Quicken I keep up with this. Accountants would call this “escrowing”. I call it managing.

All those bonuses come back to you, Sam’s once a year, my 2% card, every danged month.

The story gets better. Since I do such a good job with my cards I get offers that I look for. Typically they say, charge $500 within the first 90 days of receiving your card and get $100 (or $200 bonus.) So I apply for the card and when I get it, I immediately run it up to $510 and then shred the card. By the time I get my first statement, the $100 or $200 credit is available. So I claim it and pay it toward my balance. Now when I set my payment I send them $410 or $310 or whatever the balance less the bonus. I wait until the next statement to be sure everything is clear. Then I cancel the card, which I have already destroyed. They want to know why, they want me as a valued customer, nope, too many cards already, cancel and confirm in writing. A couple months later I get the same offer again. I have had dozens of AARP cards, sometimes two at a time, one in my name, one in my wife’s. Since I am retired they can’t verify income, I simply say I make $100,000 per year and so does my wife (it’s nowhere near that, but it greases the card application process and I get approved on line quickly.)

Other cards say things like, 0% interest on purchases until some date 18 months in the future. When we make a big purchase, like a $13,000 backup generator, I take one of those offers and put it on that card or multiple cards. If it’s 18 months, then I make payments of $13,000/18 = $722.22 per month. Again, everything is in cash flow.

On a side note, every Quicken transaction gets a memo and a category (Quicken will take care of this for you with minor editing). Buy some vitamins? The category is “deductible: prescriptions”. Pay our LTC bill, that’s deductible, too. When tax time comes, Quicken prints a report I hand to my tax attorney, all neatly itemized and sub-totaled. All I need is W-2’s and 1099’s and I have everything he wants to prepare the taxes. I do taxes all year long, a few transactions at a time, instead of trying to gather a year’s worth.

OK, that’s the basics of the system and how I get rebates on most everything (plus I ask for senior and military discounts). My Amazon store card gets me 0% interest for 6 months if I spend $150, or 12 months if I spend $599. With Prime I get free 2-day shipping.

Now back to credit scores. There are a few things, which reduce your score. If there is a formal inquiry to check your credit, as in actually asking for credit or taking out a new card, then this counts against you. I go through a lot of cards, so I’m a bad boy and it shows in my number.

The age of your cards works for you or against you. You’re better off if you have had the cards a long time. This hits me, but not my wife.

The big one is something called card utilization. Let’s say all your cards have a total credit line of $75,000. If you have a balance on those over 30% ($22,500) then this really slams your score. Yes, that’s right, you are more of a risk if you have the audacity to use your credit.

Naturally, late payments, insufficient payments, defaults count against you. I’m great in this area and it gets me those sweet offers. If you miss, it will haunt you and you’re back to being a victim. Follow the system and don’t get behind.

So that’s why my score is lower than my wife’s. I’m absolutely on track with my 0% cards, but they will negatively impact my score until I get them paid down. Frankly I don’t care. There is no use in having a perfect score and paying immediately. My system relies on OPM (Other People’s Money). They are counting on me slipping up. I count on taking the stupid offer and using it to my advantage.

Final note. Once a month or so I dump out the bag of slips and start checking in Quicken to see if they have cleared. If they haven’t they go back in the bag, if they have and aren’t for a major purchase (something with a warranty) I shred them. That way the bag isn’t overwhelming. Technically you’re supposed to hold the receipts for several years for an audit. I have organized records and copies of my charge statements. I can defend the amount, the payee and the date. I think that’s more than enough.

Good luck if you head down this road. Feel free to ask questions or point out any flaws.
Dave Sause
oldandfat@cox.net
(405) 694-3690

"And you're telling me this because, somehow, I look like I give a shit?"

"Let a smile be your umbrella and you're gonna get your dumb ass wet."
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