Money for nothing, and flights for free

Like many people I like to get something for nothing, so the chance to get enough free 'frequent flyer' points to 'pay' for round trips from Australia to New Zealand for a ski trip for myself and DW was quite attractive. So, last April I Googled "QFF bonus points no annual fee" to see what credit cards were currently offering a) a sizable number of 'bonus points' for obtaining a new credit card and simply using it for my normal monthly expenses, and b) would not cost me anything (no annual card fee for the first year).

The card I decided on was the 'ANZ Frequent Flyer Black' card. The card was offering 75,000 'bonus' points if you got the card and made $2,500 of purchases using the card within the first three months. As I normally put about $2000+ per month on my credit card (for standard expenses such as groceries, utility bill payments, petrol etc.) and pay the amount due in full each month, it would be no trouble simply putting those charges on a different card for a couple of months. The online application took about five minutes to fill in, and, because I included some investment income (dividends) in the financial details, I received a phone call a few days later asking for evidence of the dividend income I'd listed. I simply had to send a pdf statement of the past 12 months worth of dividend payments, sourced from the two share registries that do the admin for most Australia shares.

The card arrived a week or so later, and, as expected, I easily met the required 'spend' amount within the first two months. Now that the 75,000 QFF points have been 'statemented' I just have to wait until they get transferred to my QFF account, and then I'll phone up to cancel that credit card. Meanwhile, since I've met the required spend amount, I've switched back to using my normal credit card.

The 75,000 points will be sufficient to 'buy' two round-trip economy class seats from Sydney-Christchurch (they currently are listed at 36,000). And it cost nothing. Well, almost. I did manage to forget to pay the first monthly statement by the due date (my normal credit card bill gets paid automatically via direct debit from one of my savings accounts), so I ended up paying about $30 in interest. Still, overall it is a very cheap way to fly from Australia to New Zealand!

Once I've cancelled that card I *might* do a similar thing with a credit card from another bank, although at the moment the best offer I can find is 'only' for 40,000 QFF points. Once the ANZ account has been closed for at least 12 months, I could apply for a similar offer as a 'new' ANZ customer again, although it seems slightly unethical.

Aside from costing me a few dollars when I forgot to make the monthly payment (in full) on time, the only 'downside' of this technique is a potential 'hit' to ones credit score. So, if you are about to apply for a major loan (eg. a home loan), then this probably isn't a good idea. And if you don't have a good credit score, you probably won't get approved for such a card anyhow. Also, unless you are used to charging your expenses to a credit card and paying off the balance IN FULL each month, it would be highly inadvisable to start using a credit card just to qualify for some frequent flyer points. Another thing to look out for is any 'service fee' that may be added to bills paid using a credit card (for example, some utility bills add 1% or more to your bill amount if you pay using a credit card). Similarly, Coles and Woolworths don't apply any 'surcharge' for paying for groceries using a credit card, whereas Aldi adds on a small charge for making payment via credit card.

Another thing to watch out for is cancelling your card too soon - before the FF points have actually been transferred into your FF account - such transfers are usually only processed when the following monthly statement gets processed. So, if you pay off and cancel your credit card as soon as the FF points appear in your online transaction listing, they may never arrive in your FF account.

Subscribe to Enough Wealth. Copyright 2006-2018

Some credit card cash-back

One of the oldest credit card 'rewards' schemes in Australia is FlyBuys. I've been a member since the program started, and it's always nice to redeem some of the accumulated points for a credit onto my credit card account. My latest FlyBuys. statement showed that some of the points balance had been accumulated three years ago, and would therefore expire at the end of February. So yesterday I used most of my points balance to claim a $450 credit onto my CC account. It was interesting that the reward confirmation screen advised that you should 'consult your tax advisor' to check if the value of the reward was taxable income. A quick check of the tax office website shows that such CC rewards are not taxable. That's not really surprising - if the value of the reward accumulated by using the CC was taxable, then the annual fee and interest charges would also be deductible expenses. The last thing the ATO wants is for consumers who 'earn' $100 worth of rewards points to be able to write-off hundreds of dollars of credit card interest!

I'll be earning fewer FlyBuys. points from now on - the points rate has been decreased from 2 points per dollar to only 1 point per dollar for spending on my National Visa CC, and I'm also using the CC for fewer bill payments since the RBA changed the rules and allowed service providers to "pass on" merchant CC fees. These days you have to check the fine print of any utility bill to confirm if there is a 1% or more fee for making payment via CC.

BankWest sent me a special offer for using my BankWest Zero CC during February, March and April. If I use that CC for at least $500 spending each month I'll be given a $30 credit. That works out to be 2% "cash-back" on that card, compared to the approximately 0.2% value of FlyBuys. points, so for the next three months I'll be using my BankWest CC for at least $500 of my usual bill payments and grocery shopping each month.

As I pay off my CC balances in full each month, none of these CC rewards schemes cost me anything (aside for a low annual account fee for a couple of my CC accounts).

Subscribe to Enough Wealth. Copyright 2006-2008

Credit card scores and scams

Credit scores in Australia are an amorphous concept, with interest rates generally being pegged for particular products, rather than being varied for individuals based on their credit history. In the US "credit score" usually refers to an individual's FICO (Fair Isaac COmpany) score. It is generally based on the following information:

• payments history- 35%
  
• amounts owed - 30%
  
• credit history length - 15%
  
• recent new credit - 10%
  
• types of credit utilised - 10%
  

However, agencies differ in exactly how they calculate the score.

Apart from determining one's ability to get credit, and influencing the interest rate that will be charged, the FICO score can be useful in monitoring for signs of credit fraud. If your FICO score has fallen unexpectedly you should check your credit report to see if it shows any suspicious inquiries or unexpected accounts charges. One of the best methods of credit scam protection is to place a fraud alert on your credit report. This will (in theory) mean that every time someone applies for credit on your account you will be notified and can therefore detect illegal activity as soon as possible.

Subscribe to Enough Wealth. Copyright 2006-2008

Pulled the plug on my Amex Gold card and saved $150

As previously posted, I was disgruntled to find that my last Amex bill included a $20 "late payment" fee, plus my annual $130 membership fee. Since I only charge my monthly $150 family basic hospital insurance to this account, it makes no sense to pay these sorts of fees. So I phoned the health insurance company and arranged to have future monthly debits taken from my NAB Visa card, which I use for everyday purchases and bill payments, and checked the date of the last charge made to my Amex card.

I then phoned Amex. Closing the account was quick and painless, after the obligatory questions about why I was choosing to close my account and getting a reminder that the Amex card has lots of extra features (which I never use), and I was invited to reopen a Charge card account in future if my requirements changed. I was pleasantly surprised that rather than just giving me a pro-rata refund on the annual fee that had been charged in March, they refunded the entire annual fee AND reversed the $20 late payment fee that was on my last monthly statement!

This means I now just have a Gold Amex Credit Card (with $0 annual fee for life). I don't use that card either, but at least it isn't costing me anything.

Copyright Enough Wealth 2008

Time to lose my 'gold' card

I've had an Amex card since I graduated from Uni in the early 80s and started my first full-time job. Back then my "everyday" credit card (a National Bank Bankcard) was only accepted by merchants in Australia and New Zealand, so the Amex card was a useful adjunct to travellers cheques when I went on a holiday abroad (it was also a bit of a yuppie status symbol, at least in my mind). However, these days my Visa card is accepted by more merchants than the Amex card when travelling overseas, and I only use my Amex Gold card to charge my $150 monthly health insurance premium. I plan to pay off the balance in full each month, but a couple of times I've mislaid the bill and been slugged with a $20 late payment fee. This month I not only hit with a $20 fee for forgetting last month's bill, but the annual fee has increased to $185! So, it's about time I made the effort to arrange for my insurance to be charged to my Visa card and finally got around to closing the Amex account. Anyhow, these days the "gold" card is pretty down-market and definitely not worth the cost.

Copyright Enough Wealth 2008

An Elite Credit Card with a difference

The select-credit-card.com website has an information centre that provides some useful information about the usual CC topics such as new credit products, credit repair post bankruptcy, credit bureaus and bad credit. However, it also has some more esoteric information that you might not find elsewhere. For example, this Elite credit cards page provides some information about the Sotheby's World MasterCard and the Sotheby's World Elite MasterCard, which are definitely not your "typical" credit card offering. Do you earn well into the six figures? Fancy buying expensive art works to decorate your penthouse, inviting your friends along to the best museums free of charge, take a helicopter tour or rent a mansion in Europe? Well, if so, this card may be just what you are looking for.

I can't imagine that many multi-millionaires shop around for their next credit card using the Internet, but perhaps their personal assistant or accountant will come across this website while surfing the 'net on company time. Anyhow, it's interesting to read about some of the products and services available to those living at the top end of the wealth distribution curve. I may not be in the position to justify paying $85 annual fee for this card (I also couldn't get one since I'm not a US resident), but I can imagine some people would like having the card in their wallet (it looks a bit more up-market than the usual MasterCard from AnyBank). However, the Elite version (available by invitation only) is really only suited to those for whom money is no object, and are happy to pay $395 a year for "personal" services such as:

• 24/7 concierge and travel consultation
  
• Complimentary Business Class companion international air tickets
  
• Upgrades from Economy to Business Class on international air travel
  
• Global airport lounge access
  
• Upgrades and amenities at 700+ top hotels, resorts, spas, lodges and villas
  
• Complimentary shore excursions on 400+ luxury cruises annually

I don't think I'll ever be rich enough to want such services, even when my assets (net worth?) exceed the US$2 million which is apparently required to get an "invitation" :)



Copyright Enough Wealth 2008

Talk Your Way Out of Credit Card Fees and Interest

Guest Post

Many people take high interest rates and extra charges lying down. But if you have a good credit history you can negotiate better rates and lower fees just by picking up your phone. Credit card companies don’t tell you this, but it’s true.

There is a rule in marketing that attracting a new customer costs 10 times as much as keeping an existing customer. Because competition is so fierce in the credit card industry, you’re an attractive asset to their business and it makes sense and cents to keep you in the fold.

Here are some examples of what you can get with a simple, polite phone call to your credit card company:

• Late payment fee? If it’s your first “offense,” a simple call to your credit card company will likely win you a reversal of the charge.
  
• High interest rate? Simply call and request a switch to get your interest rate lowered – but if they offer you a lower rate with an annual fee, refuse to accept the annual fee, providing an example of a competitor’s offer without an annual fee. To keep your business, your creditor will likely waive your fee and give you a lower rate.
  
• Low credit limit? An easy way to boost your credit score is to request an increase in your spending limit, which will automatically lower your debt-to-credit ratio. The debt-to-credit ratio is how much credit you are using out of your available credit and is a factor in your attractiveness to other credit lenders. Just make sure you don’t use the increase as a license to spend more!
  
• Did your credit card company jack your interest rate without much notice? Credit card lenders are only required to give you 2 weeks’ notice when they increase your interest rate. If you have a solid track record and can easily get a competitor’s lower rate, call up your credit card to negotiate a lower rate.
  

Tips for dealing with banks over the phone:

• Call as soon as possible after your bill arrives if you’re disputing a fee
  
• Have your statement on hand when you call with numbers and figures, and older statements that show your good history as a customer
  
• Be prepared with “deal breakers” – you’ve had other offers, you’ll transfer or close your accounts
  
• Be calm and polite, don’t be a jerk about it
  
• Don’t blame the representative for mistakes
  
• Don’t close your account right away before giving your bank a chance to resolve your issue
  

About the guest author:

Linda Bustos is a contributor to Creditor Web, where you can learn more about credit cards, banks and how to use plastic money wisely.

Copyright Enough Wealth 2007

Impulse Buying and the Dangers of Credit

Citibank sent me an offer to increase the credit limit on my Redicredit account by $10,000 to $55,000. I don't use this account very often (it used to have an interest rate around 10% so was OK for short term use when I wanted to write a cheque for a mutual fund investment or share purchase plan, but recently the rate was increased by several percentage points) and I don't carry a balance (except when they offered a 0% rate for 6 months which I used to pay some interest due on one of my margin loan accounts). However, it is always handy to be able to write out a cheque for a large amount if needed, so I'm sending in the acceptance form.

Today I also received an email notification about an online coin auction being run by the coin dealer I had bought some silver coins from last year. I had a browse through what was on offer and saw a 2002 10oz Proof Silver "Evolution of Time" coin was on offer with a minimum bid of $275 and no offers as yet. After a quick check on the internet I confirmed that this coin is currently on sale from the perth mint for $367, so at $275 it would be a good deal. I entered a maximum bid price of $276, which meant my initial (and only) bid was at the minimum price of $275. I didn't bother checking if anyone else bid on this item during the day, but tonight I received an email confirming that I had "won" the bidding on this coin. So I now have to arrange payment and delivery.



Luckily I'm not usually an impulse shopper, otherwise a $55,000 line of credit could be dangerous ;)

Copyright Enough Wealth 2007

Platinum Ho Hum

Through my workplace I have access to a "special deal" whereby I could get a "Platinum" card from one of the major banks for 'only' $200 per annum membership fee - which is a slight discount to the normal $250 annual fee. The only trouble is that I can't for the life of me see how this card would be worth even $200 a year to me. It does have a "free" rewards program which earns 1.25 pts per dollar spent on the card, and up to 55 days interest free on purchases, but I already earn FlyBuys points on my normal NAB VISA card (which I redeem for a cash credit on the account), so that would be of no net benefit. It also has a 0% balance transfer offer, but only for 6 months, so I wouldn't earn enough interest through CC arbitrage to pay for more than a couple of years worth of membership fee. That leaves me just a plastic "status symbol" costing about $4.00 a week - and even the "status" of a Platinum card has been devalued on the years, so that these days only a Black Amex or similar will make any impression. Overall I think I'd rather put an extra $100 a year into DS1 and DS2's bank accounts at Christmas time.

Copyright Enough Wealth 2007

Would you Lend Me This Much Money?

Probably not, but the financial institutions would. Aside from the amounts I owe on our property mortgages and stock portfolio margin loans, I have the following unused credit limits available:

Credit Cards
#1  $9,250 @ 18.99%
#2 $23,000 @ 17.49%
#3  $8,000 @ 14.74%
#4 $45,000 @ 11.99%
#5 $17,000 @ 13.74%
#6 $27,000 @ 12.99%
#7 $20,000 @ 15.95%

Mortgage redraw available
   $50,800 @  7.37%

Portfolio Loan (like a HELOC)
  $138,000 @  7.47%

Stock Portfolio Margin Loan available cash amounts
#1 $85,985 @  9.15%
#2 $34,859 @  8.90%
#3 $60,170 @  8.85%

Overall approved credit available:
  $519,064 @  9.97% average interest rate

It's interesting to see how much the standard rates on my various credit cards vary. Of course most of these cards aren't in use - they were only used for 0% balance transfer arbitrage and have no outstanding balance. The one CC I use for all day-to-day bill payments and shopping usually has a monthly balance of around $2,000-$3,000 which is paid off in full each month.

The margin loans limits are also just for making a cash withdrawal (ie. 0% margin value), if they were used to purchase stocks the available funds would be 2-3x the listed amounts.

I only use credit to purchase investments, and nothing too speculative, but it's easy to see how someone could get into a LOT of trouble if they were to suddenly make use of the credit that is on offer to make "lifestyle" purchases... Of course the lenders aren't too worried since most of this lending would be secured against real estate or company stock, with the maximum possible LVR getting to around 75%-80% if I maxed out my credit.

Copyright Enough Wealth 2007

Bait and Switch by Citibank

Just as well I don't need to use credit to buy anything, Citibank just sent me a letter advising that the APR on Redicredit accounts is being raised from 11.99% to 16.5% I'm sure it was only a few months ago that they lowered the rate from around 13% in order to tempt their customers into using Redicredit to make purchases that they might otherwise put on a credit card or use a personal loan to finance. Although there are no annual fees or cheque book charges for using the Redicredit account, the higher interest rate means that I'll only keep this account open for use in an emergency.

Enough Wealth

Why Generation Y is Addicted to Debt

Just a quick link to an interesting piece in today's SMH about consumer debt:
Abstract Nouns are All Very Well

Enough Wealth

Why 0% balance transfer are Good for your Credit Rating

A funny thing has been happening with the new Credit Cards that I obtained just to make use of the 0% balance transfer offers that were available. Many of the issuers are now sending offers to increase my credit limit! Apparently having a balance on the card and making the minimum payment each month makes me a model consumer, and the credit card companies are falling over themselves offering increased credit limits. I can only assume that either the system they use to decide who should be offered more credit only looks at the repayment history, and doesn't care about the interest rate being charged. Or perhaps they are just hopeful that once the 0% period expires I'll just keep making the minimum payment each month, rather than pay it off in a lump sum. Anyhow, there's not really any downside to accepting the increased credit limits from my point of view - we don't have a "credit score" as such in Australia, so I may as well have a large line of credit available in case of emergencies (it lets me keep all my funds invested according to my asset allocation, rather than keeping an "emergency fund" invested at call at somewhere).

For US readers taking out new cards and accepting higher credit limits may adversely affect your FICO score temporarily - but after a while it may still be a positive as an increased credit limit will mean that the amount of debt on your cards (for 0% balance transfers) would be a lower % of the total available credit.

Enough Wealth

Comparison of Australian and US Lending Criteria

Gerad emailed me an interesting question in response to my post "It's Raining Credit":
I was wondering if you could do a post on how the credit system works
in Australia... i.e. do you need to have a credit card to get a good
interest rate for a car loan etc/if the situation is similar to the US.
I've been reading a lot of US literature but being in Sydney, I don't how
things work here...
I don't claim to be an expert, but I can summarise the main differences as I see them:

• In the US you get a CREDIT RATING (FICO score) based on details of your credit history. In Australia your CREDIT REPORT doesn't provide an expliciti SCORE, it just records who has accessed your credit history, and will record details of late payments, defaults and so on.


• In the US the interest rate you pay on home loans, credit cards etc. appears to be based largely on your FICO score. In Australia lenders will assess applications based on information provided (income, other debts etc) and use your credit report to check for bad debts and so forth. As your credit report doesn't include a specific score, the interest rate on home loans, credit cards etc. is generally standard for all borrowers - the lender just decides whether or not to extend credit to you.

The benefit of the Australian system is that it is probably much easier to get your first loan, credit card or whatever. As long as you have sufficient income, and a stable residential address, lenders will be happy to approve credit to a new borrower. The downside is that if you have an excellent credit history they will throw offers at you to increase your credit limit, but generally don't adjust the interest rate (one common exception is that home loan interest rates are generally a bit lower for "gold" customers - those with large loan balances and good credit history).

Recently GE Money has started to increase its presence in consumer lending in Australia, and I've seen ads with "interest rate FROM x.xx%" which indicates that they will be setting interest rates individually for each borrower, based on their credit history.

It's Raining Credit

Now that the holiday season is over everyone must be back at work over at the credit card companies - they've started sending out offers to increase my credit limits. Yesterday I received an offer to increase the credit limit on one of the CCs I used for a 0% balance transfer for the past 6 months, from $6500 to $9750. And then today I received an offer from Citibank to increase my line of credit limit from $35K to $45K. I'll accept both these credit limit increases as it doesn't hurt to have more credit available (except when applying for a home loan, where they count all the available credit limits as if you had borrowed that amount). But I won't be using any the CC as I have another one for my day-to-day purchases which I pay off in full each month. I may use the Citibank line of credit account at the end of the financial year to prepay a year's margin loan interest (to get an immediate tax deduction on the interest), and then pay off this balance over the following few months.