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Zero Interest Redux

I wrote about a zero interest credit card offer I accepted, and received some feedback and a couple questions from a reader:

Besides possibly affecting your credit score (by having too much available credit), presumably you’ll want to cancel the account(s) at some point, right?

I’ve read canceling too many accounts in too short a time period also negatively impacts your credit score.

Then there’s the impact on your score from new repeated credit inquiries, etc.

Indeed the answer to the above is yes, mostly. Let’s look at what impacts your FICO score;FICO chart

By the way, the above is from a PBS special, “Secret History of the Credit Card.” Mrs. Taxpayer is still kidding me how a show with such a title can get my interest.

FICO formulas are still a bit of a secret, but the above is a good start. As I’ve read more about each of these criteria, I understand that ‘amounts owed’ are a ‘percent available credit used’ more than total dollars. So accepting a new card and instantly using the entire line may have a bit of an impact, but this is where unused credit on other cards actually helps bring down the total percent used. Of course, applying for too many cards in a short timespan also will impact your score. Canceling cards can hurt you in two ways, raising the ‘percent credit used’, and reducing average age of accounts, so you are correct, these are concerns.

Now assuming all that doesn’t scare one away from accepting free money, what about the tax impact on the earnings you’ll receive? Once you subtract the income tax, the $50 transfer fee, and the temporary possible credit score damage, do you think it’s still worth it?

As I posted, I will gross $450 in profit. With median (household) income at $48K or just over $24 an hour, I do think it’s worth it. I dropped off the cash advance check along with other business I had, so no wasted time there. I set up 5 payments of $200 on my automatic bill pay through my bank, and marked my calendar to make that last payment in full. Maybe 15 minutes effort. I’m not planning to spend time scouting out these deals, but I won’t turn them away. I am 45 years old and remember when $450 was the pay for 150 hours of work. Would I do this to gain $50? No. $250? Sure.

To wrap up, I’ll say that if you are in the market for a mortgage, you’ll want to check your credit report and be very careful not to do anything that might hurt your chance of getting the best rate you can. I wouldn’t want to trash my credit rating, but I can afford a small hit. My fixed mortgage was closed at the bottom of the last cycle and so I doubt a refinance is in my near future. Thank-you JAL for reading my blog, and being the first to comment on one of my posts. I hope I answered the questions you raised.

Edit – I recently found an article “Five Mistakes That Hurt Your Credit Score” by Jeffrey Strain of TheStreet.com which adds to the thoughts I presented here.

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