A friend of mine has claimed that, with two credit cards, he can maintain a good credit rating without ever paying a dime on what he owes. His secret? He would use each credit card to pay off the other. Even if this is possible, it seems like such a scheme couldn’t possibly work, but I don’t know enough about credit card finance to say why. Anyone wanna jump in?
Theoretically, if you continue to get credit cards with an introductory APR of 0% say, for the first six months, you can hold a balance indefinitely.
Using this method, you are not building much of a credit history, since equifax et al like to see a long credit history for each account. A bunch of short term accounts won’t score very high. Also, once a certain number of accounts are open (if you fail to close the others), people will stop approving them. No one want to give someone who make $80,000/year a credit line of $1,000,000. When I was young and poor, I used this method, using balance transfers, to keep from paying interest. If you want to do this, watch out for an initial balance transfer fee.
Only using two cards, though, means that eventually you will be charged interest. Sure, you can keep transfering it between the two, but the balance will continue compounding. Besides the compounding factor, my understanding is that the credit agencies and credit scoring agencies(fairissac, etc) like to see a large balance that is paid off regularly, over time. Think stability. that’s why car loans and especially mortgages help you score better on a credit score.
Yes, it is possible to run up tremendous levels of debt by using MasterCard to pay Visa, but like any Ponzi scheme it will eventually tumble to the ground any everyone will lose everything. Here’s how it would work. Say you owe $100 on Visa. You take a $100 cash advance on your MasterCard to pay your Visa. Visa is paid the $100, but the MasterCard is charge $125 (cash advance fee + interest from cash advance date). Next month you get a cash advance for $125 from Visa to pay MasterCard. MasterCard is paid off, but $175 is charge on Visa (cash advance fee and more interest). So far you’ve received $100 in merchanise, and now owe $175.
The dollars start getting exponential about $5000. So you could do this for 2 years or so, provided you don’t buy anything else on either the MasterCard or Visa.
Makes sense. Thanks for the info.
Your friend is an idiot, Ultrafilter. Stay away from people like that… I’ll bet 20 bucks he tries to borrow money from you within a year, if he hasn’t already.
Yeah, this is an old scam they used to call “churning.” You used to be able to do this with bank accounts too, but they tightened up on kiting checks.
Believe it or not this WAS once possible.
In the early to mid 80s I was able to transfer balances WTIHOUT INTEREST.
Then about 1987 I noticed my credit cards stated while balances for CHARGES do not start accuring interest FOR A 28 day grace period those for CASH ADVANCES start the moment you make them.
You will also notice while if you charge say 100 and pay it off you get no interest but if you have a balance most CC now a days charge interest from the moment it is charged IF YOU HAVE A PREVIOUS BALANCE NOT PAID by the grace period.
The only way I can see you doing it is most CC companies NOW will let you transfer balances over free ONE TIME as soon as you sign with them
Card juggling only works for a couple of months, and is very useful when you are temporarily unemployed. But now that the banks tack $25 fees to these type of balance transfers, it is most definitely not worth doing that ‘trick’ in the long run.
There’s also a question of why you want to do it. Seems like a waste of time, considering you could get an equally good credit rating just by living within your means, buy stuff with the card, then pay it off.
Like Demo said, the 0% scheme would work, if you could find cards offering them anymore. They used to, but a lot of them have stopped. Now, they doing really sneaky shit to raise money from fees.
Truer words were never spoken.
I’m doing this now, after 15 years of piss-poor credit. I put everything on my card, including groceries, and scrupulously pay the balance in full every month.
If you’ve never had bad credit, you have no idea how debilitating it can be.
And don’t fuck with the IRS or the Student Loan people. They never forget.