Accept Credit Card offers with Free CASH$?
October 10, 2012 6:37 PM   Subscribe

Is there any good reason not to take advantage of free cash back offers from credit card companies as long as I pay my monthlies promptly? FOr that matter, free miles offers? I have been doing so for some years and my credit score seems to stay strong and yet I was always told that there is no such thing as a free lunch/.
posted by dougiedd to Work & Money (10 answers total) 5 users marked this as a favorite
I asked this question a while ago, albeit with more snowflakes.
posted by geegollygosh at 6:41 PM on October 10, 2012

Too many credit cards (6+, including store cards) tends to hurt your credit score.

Also, new lines of credit also tend to hurt your credit score for the first year or so.

If you have no plans to buy anything big in the near future... Abuse away. Just start cleaning things up (aka "cancel all but a few") at least two years before you change your mind.

FWIW, in the 1990s, a lot of people made good money playing "credit card arbitrage" games, where they would take advantage of free cash advances to invest it in a six month CD and pay back no interest. Because of that, you usually see such sign-up "0% introductory rate" offers come with a flat fee equal to a percent of the balance transfer. Expect to see something similar for what you describe if too many people sign up for them but never even bother using the card (that said, I have nothing against abusing stupid companies - Enjoy it while it lasts!)
posted by pla at 6:49 PM on October 10, 2012

As long as you really and truly pay off the monthly bills and don't carry any interest, sure. They'll send you checks in the hope that you'll take out large amounts of cash and then have to pay the interest but as long as you don't do that, you'll be fine. My husband and I have been doing this with Discover for years and years and we regularly have Bonus Bucks or whatever they call them on Amazon and get checks to cash.

As for more than six cards including store cards hurting your credit score, I have many more than that (I only use a couple on a regular basis, paying off the monthlies every time) and my score is over 790. Could I get to 850? I don't know but 790 is okay by me.
posted by cooker girl at 6:54 PM on October 10, 2012

I signed up for 6 (six) credit cards between April 2011 and September 2011 (after already having 5). I approximately received about 400,000 miles-- something that's worth several thousand dollars.

I applied for a my very first mortgage in April 2012, was accepted with the lowest interest rate possible (I was told my FICO was significantly higher than to make the highest level).

So bottom line: if your credit is good, it doesn't matter-- just make sure your signing up for the best cards possible and for the highest bonuses possible.

Other things to think of:
-These cards will start charging you after a year. You can call them and attempt to cancel-- they will give you the money to pay for your second year
-The more cards you get, the harder it will to get more cards on the same company. I was able to get cards from Citi, Amex, Chase-- but when I tried to get my 2nd chase, I was denied.
posted by sandmanwv at 6:56 PM on October 10, 2012 [1 favorite]

It isn't "free" per se because you have to put in the work to be a responsible card bonus abuser (pay balance in full, cancel before fees kick in, etc). Enough people fail at that task to subsidize the rewards for people who don't.
posted by telegraph at 7:08 PM on October 10, 2012 [1 favorite]

It's also not "free" because the merchant pays a fee with each charge. Even if you pay off your bills on time, the company is making a little money on every transaction.
posted by brianogilvie at 7:22 PM on October 10, 2012 [4 favorites]

Too many credit cards (6+, including store cards) tends to hurt your credit score.
This does not appear to be the case at all from the huge amounts of data that have been published about credit scores. In fact, it is pretty much the opposite. A significant component of your credit score appears to be credit utilization (how much of your available credit you are actually consuming). The lower your credit utilization as a percentage, the higher your score. By adding credit lines without increasing your debt, you are improving your score. I monitor my credit score pretty closely and it is up more than 40 points since I started seriously adding credit cards (mostly for mileage bonuses).

Credit card companies pay you miles and cash back bonuses because they earn more money than they pay when you charge things. They are very happy that your quest for miles and cash back has led you to charge far more things and pay cash and write checks less often.
posted by Lame_username at 7:35 PM on October 10, 2012 [1 favorite]

"Is there any good reason not to take advantage of free cash back offers from credit card companies as long as I pay my monthlies promptly?"

Nope! Consumer Reports rates reward-bearing credit cards, and I believe did so in the last issue or two (I juuuuuuust read it, but can't find the magazine ... my little boys like the car pictures and steal it). Many carry no yearly fee: Two popular no-fee cards with pretty good reward programs are Chase Freedom and Amex Blue Cash (not the Blue Cash Preferred, which has a fee, but pays better rewards). As long as you pay every month in full, and the card has no fee, there is no downside to you for having the rewards card. Look at your last few months of typical statements and try to match your spending to the best rewards (some give more money on gas, or groceries), and then match the rewards to your needs -- cash, points, miles. (Cards with an annual fee may be a better deal for you individually, depending on your spending and anticipated rewards.)

The upside for the credit card company is that they get an interchange fee (around 2%) on every transaction. They make money on you even when you pay promptly, and consumers who spend a fair amount on their cards every month and pay it off every month are DESIRABLE to credit card companies; they are earning a steady 2% of your purchases and they never have to chase you for money. You are more likely to be a reliable customer for many years, earning them reliable, easy money. The cash back that you get is less than they will earn on your business that year.
posted by Eyebrows McGee at 8:17 PM on October 10, 2012

I didn't believe this either, but seven years later, it's worked out OK with that one and a few others.
posted by SuperNova at 9:02 PM on October 10, 2012

The upside for the credit card company is that they get an interchange fee (around 2%) on every transaction.

This is the crucial point. The provider of your card gets a percentage of every transaction that you make with that card at a business - even if, had you paid in cash, you would have paid the same amount.

To incent you to make purchases with that card, the credit card company can kick you back a small amount of each purchase - usually around 1% - and still make money even if you don't end up paying them additional money in finance or yearly charges. It's not a free lunch, even if it seems that way: it is ultimately *the retailer* paying for your rewards in exchange for accepting credit cards.

The place where this becomes morally ambiguous is with small local businesses, where you might prefer that they do well enough to thrive or open more stores rather than pay for your credit card rewards. At those businesses, pay in cash, or if you're short on cash, with a debit card (using a PIN), neither of which incur the higher transaction fee that a credit card does.
posted by eschatfische at 9:07 PM on October 10, 2012 [3 favorites]

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