Category: App-o-rama

Suze Orman Talks App-O-Ramas; Hilarity Ensues

App-o-rama

Yesterday Suze Orman had a segment dedicated to App-o-ramas, so out of curiosity, I tuned in to find out what she had to say. I must admit, it was entertaining for all the wrong reasons. I was amazed at the number of factual errors an 8 minute segment could contain. For fun, I’ve run down each of her points as she tries to warn viewers away from pursuing the strategy.

Suze: To qualify for 0% offers, you must have a FICO score of 760-850.
This is patently false, as there is no such hard line. Of course you’re more likely to qualify for these offers if you have an excellent score, but plenty of people with lower scores can and have received 0% credit. Should you bother to try if you have a 500 credit score? Probably not. But as long as you can afford the short-term ding to your credit from the inquiries, what do you have to lose? If you don’t get a 0% offer after applying, and instead get a higher rate offer, you can always say no.

Suze: You need to use a cash advance, which usually has a 21% interest rate.
Huh? She lost me there. If you’re paying cash advance fees in an app-o-rama, you’re doing something seriously wrong.

Suze: Balance transfer fees used to be $75 flat fee, regardless of how much was transferred. Now, they’re a minimum of $75, up to 2%-3% of the transferred amount.
Where to begin? Her characterization of balance transfer fees both before and after issuers “wised up” are inaccurate. There are literally hundreds of offers listed in our offers database with a minimum balance transfer fee of $5-$10 and a maximum of $75. There are also still some without any fees at all.

Suze: You must pay taxes on your savings account interest, and you must make minimum payments on the amount you’ve borrowed, so you’re earning less interest than you think.
For once, she’s gotten something (partially) right, but no one has ever argued that this isn’t the case. When calculating your profits you should of course consider that you’ll need to pay taxes and minimum payments. What she neglects to mention are how signup bonuses can also significantly boost your effective return.

Suze: 0% is not fixed. The credit card companies can change your interest rate at any time they want.
Another extremely misleading statement. Yes, the credit card companies can jack your rate if you’re late on a payment, but they won’t go about raising your rate just because they feel like it, and certainly not without warning. If you’re not responsible and organized, and think you might miss a payment, you shouldn’t be playing the game.

It should be noted that I have absolutely nothing against Suze Orman. To be honest, if I was giving advice to her target demographic, I also would advise against trying an app-o-rama. The problem is that her arguments were littered with factual errors and scare tactics. There are many legitimate reasons to avoid an app-o-rama; it’s a shame that her staff couldn’t be bothered to do the research to identify them.

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Introducing the Credit Card Offers Database: An App-O-Rama Resource

App-o-rama

Recently, I’ve spent quite a bit of time putting together a database of hundreds of credit card offers in what I hope is an easily searchable format. It presents the most relevant information that you look for in a card offer when determining its suitability for inclusion in an app-o-rama: namely, the intro purchase rates and periods, intro balance transfer rate and periods, the associated intro balance transfer fees, as well as whether there is a signup bonus.This is still a work in progress, perhaps not even worthy of a “beta” tag, but I would welcome any feedback at this point, including any errors you may find. If enough people find it worthwhile, I can spend some time maintaining as well as adding to it.

You can find the credit card offers database here.

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An App-O-Rama Primer: How to Profit from Credit Card Offers

App-o-rama, General

An App-O-Rama (also known as an “AoR,” or stoozing if you’re in the UK), simply put, is when you apply for many credit cards at once to take advantage of their signup bonuses and introductory balance transfer offers. If you have good credit, you can easily make thousands of dollars from this technique, with very little real effort.

Today, I’ll step through the process at a high-level. Please note that this strategy is definitely not for everyone. If you fit any of the following profiles, I would heartily recommend not pursuing this strategy:

Who Should NOT Do an App-o-Rama

  • Anyone who is not fiscally responsible — applying for a lot of credit cards and balance transfers means taking on A LOT of new debt. Anyone who cannot be trusted to safely invest this borrowed money should just stop reading here.
  • Anyone who is not meticulous with recordkeeping — the penalties from late or missing credit card payments would wipe out any potential benefit from this strategy.
  • Anyone who needs a new loan soon — an App-o-Rama will trash your credit score in the short-term, so if you will be in the market for a new mortgage, car loan, etc. in the near future, you should hold off on your app-o-rama.

Step 1. Preparation

If you truly want to maximize your profits, you’ll need to do some prep work beforehand to max out your credit score and make yourself as attractive as possible to credit card companies so they will approve you for many cards with high credit limits.

There are a couple of easy ways that you can help your score out. First, try to avoid applying for any new lines of credit for at least six months to a year before starting your app-o-rama. Each time you apply for credit, your credit score takes a slight hit. Ideally, you would minimize the number of credit inquiries you’ve had within the last year, since that is roughly the time frame in which inquiries affect your credit score. Applying for new credit is also bad since opening a new line of credit will decrease the average age of your credit accounts, which is another factor that weighs in your score.

It would also be wise to pay down any existing credit lines that you have to manageable amounts, as the percentage of available credit you utilize is another important factor in your credit score. You will definitely want to stay below 50% utilization of credit, but the lower, the better.

As you’re putting your credit profile in order, start doing research into the credit card offers that you intend to apply for. An admittedly biased source (me) thinks that this blog is a great resource to use to find worthy credit card offers. In particular, check out the credit card offers database.  You should pick not only cards that you intend to use long-term as everyday cards, but you should also single out cards that offer good signup bonuses or introductory balance transfer offers. Be especially wary, however, of balance transfer fees associated with introductory rates–even if a credit card offers a 0% intro rate, it may not be worthwhile to take if it comes with an uncapped 3% balance transfer fee, since it may be difficult to find an investment that would recoup that cost.

Step 2. The Application Process

Once you’re ready to start, the application process itself should be fairly straightforward. Since there is a small lag time until an inquiry shows up on your credit report, you’ll ideally want to apply for as many cards in as short a period of time as is reasonable. Obviously, if a bank can see that you’ve already applied for ten credit cards very recently, they’re far less likely to approve you for your eleventh. For this reason, it’s probably best to apply for cards all on the same day. It’s also preferable that you apply for your most desired cards first, since the likelihood of rejection will increase as you go along.

Step 3. Profit!

Your work is not all done after you’ve been approved for a bunch of new cards.
For one thing, there’s the record-keeping. If you applied for a number of balance transfers, you’re going to have to be meticulous in tracking when to pay them, how much to pay, and when their intro period ends. If you can’t do this properly, it will end up costing you. Set up automatic payments, track it in Excel, use online reminders, or use an aggregator like yodlee–track it however you like, just make sure everything gets paid on time.

Also, unless the balance transfer offer comes with an accompanying low-interest rate offer on purchases, you’ll want to put the card away and make sure it never gets used until the balance is paid off. A standard clause in credit card terms and conditions trips up many newbies. That clause states that any payments will go towards the lowest interest rate debt first. This means that if the intro APR is 0%, and the standard APR is 20%, if you mistakenly purchase something on your card, you’re stuck paying 20% on that purchase until the whole balance is paid off.

Last but not least, you will need to invest all of your newfound balance transfer money. I personally would advise against putting this money into anything that isn’t risk-free and liquid. Right now, the FDIC-insured E-loan savings account paying 5.5% fits the bill nicely.

In Summation

This game has reached very widespread popularity in recent times, because of the ease in which signup bonuses and intro offers can be turned into profit. I suspect that is the reason that we’re seeing several card issuers tighten up the terms of their introductory offers. The times of easy money aren’t likely to last forever, so it pays to take advantage while you can.

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