Gaming the System with Rewards Credit Cards

I’ve noticed a trend among financial bloggers recently. People have started playing around with high-reward credit cards for fun and profit. Signing up for them in bulk, scooping the signing bonuses, strategically using the good ones, and cancelling the duds.

Now, I’m no novice to the idea of a cash back credit card: I used a REI Visa from 1999-2006 that yielded 1% cash back on all purchases, which added to several hundred dollars each year. In 2006, I switched to a Travelocity American Express that doubles the reward, giving the equivalent of 2% back on most purchases, and 10% back on travel. The only hitch is that the rebate can only be applied to travel purchases booked through Travelocity (air, hotel, car rental). This wouldn’t work for everyone, but it works for us since we travel at least once or twice each year.

Sometime around 2006, when interest rates were high and yet credit was still loose, Chase started sending me checks for my business card that could be used to pay any bill – and they were offering a 0% annual percentage rate. After reading the fine print, I saw that the conditions were favorable. So I used one of those checks to max out the card’s $50,000 credit limit, and used the proceeds to pay down a construction loan which had been charging  me 7%. This allowed me to pay the much better rate of Zero percent for one year instead. Meticulously noting the payment deadlines, I played it carefully and paid it off on time, saving several thousand dollars in interest.

Today, the credit card companies still send similar checks, but they now have much sneakier conditions like “0% APR for one year!” (except a fee of $10 or 3% of the balance, whichever is greater). Excuse me, but that’s a 3% APR, about the same as my existing home equity line of credit. Trying to mislead customers like that is a huge FAIL and should be illegal. So I now mutter a few swear words at the bank as I shuttle each of these offers from the  mailbox to the document shredder.

But this year, I’ve noticed another opportunity opening up: credit cards that pay you an absolute shitload of money to sign up.

In the olden days, people would sign up for a card for something silly like a t-shirt or a little clock radio. The banks surely had a good laugh, since on average each new customer yielded thousands of dollars of profit for them – through transaction fees paid by stores, and through charging people hilariously high interest rates for short-term loans, which they miraculously paid willingly. They built an army of slaves, paying 18% interest plus various ridiculous surcharges and fees, on money that was really worth somewhere between 3-7%.

Slowly, capitalism has escalated the battle and the card issuers are being forced to compete for slaves. They do this by offering an ever-increasing share of profits back to the consumers. Now it has reached the point where you’d be a fool to sign up for any card offering less than a $100 reward for joining, and some will pay $400-$500. As far as I can tell from reading the user agreements, there is no unusual downside to these cards – there is no annual fee and  the cash back and benefits are competitive with older cards.

One friend of mine makes quite a game of this, keeping a boquet of 14 active cards in a special folder and cranking all sorts of “manufactured spending” through them. He also works the Swagbucks system and various other coupons and gift cards. But this is too much of a job for a retired man  like me. If I’m going to take action on a consumer deal where I am effectively doing battle with a clever demon who is trying to fool me, it had better pay me several hundred dollars, and take only a small number of hours of total work.

So, motivated by the idea of sharing the story with YOU, I used myself as a guinea pig and signed up for a Chase Ink Business card (pictured above) that came in the mail, directed to my business name. The card was offering a $400 sign-up bonus. The tale below describes the experience:

I applied online, using the web address specified in the paper mailing, including a specialized offer code. This went smoothly, other than some brain-dead features in the online application page, like initially rejecting my business’s tax ID number because I included the hyphen that the government uses when issuing the number. (Hint to Chase bank programmers: Parse the fucking character string and remove the hyphen yourself instead of rejecting the whole application and pissing off the user!)

The card came within a week, with an $8000 credit line. Not the biggest account in the world, but still plenty of spending room for my little construction business. There was the usual sticker on the front telling me to “call to activate your new card!”.

When I called, the automated system asked me to enter the last four digits of my card, so I did. I was expecting the system to finish off by asking for my zipcode and then leting me go, but instead the voice announced “Please hold on, we are transferring you to one of our business specialists”.

Uh-oh. I didn’t ask for a “Business Specialist”. Is there a problem? You don’t need a human involved to activate a credit card, unless there is a glitch in your account, or some fishy sales pitch coming up.

Within a minute I was connected to the Specialist. She engaged me in some unnecessary questioning and chitchat:

“Welcome to Chase Business Services, my name is Charisse and I do hope I can provide exceptional service for you and blah blah blah may I ask why you decided to choose the Chase Ink Business card?”

“Because of the $400 sign-up bonus.”

“Did you already have a business card before choosing us? If so, why did you choose this new one?”

“Yes I did have one, but I figured this one offers the same 1% cash back as my old business card, with the added benefit of the bonus.”

“Oh, honey, this is much better than a 1% card – it offers 5% back on office supplies, 2% on gas, and blah blah blah”

I accidentally laughed out loud, because she had just called me “honey”, but I pulled it together and explained that I don’t buy a significant amount of office supplies or gas for my business, so the card is effectively a 1% card to me.

“Are you aware that we have other cards that might meet your needs better?”

“Yes, I am aware, but I thought I’d start with this card and see how it goes [and scoop another $400 bonus for that card, I figured to myself], then call you back later for more advice. Also, I’m a part-time financial writer and I specifically wanted to review this card for my readers”.

That last comment seemed to speed things up considerably, so she thanked me and let me off the hook with a new card pre-loaded with 40,000 bonus points – redeemable for $400 in cash at some unspecified time after your first purchase*.

Then I logged in to chase.com, being sure to set up a full monthly automatic payment to avoid any risk of incurring interest charges. I noted that the default was set to “minimum payment” which would obviously lead to disaster. Another mark on the “credit companies are evil and sneaky” scorecard.

I Checked the rewards balance – nothing there yet of course, since I have not even made my first purchase. But it will come, oh yes, I am looking forward to it with a small amount of glee.

This is a pretty long description of a fairly mundane transaction. But it does represent a significant source of sneaky income for someone with time on their hands and a desire to accelerate their savings. Mike’s earnings were equal to about 10% of my family’s total 2011 spending. And I actually just cashed in $100 from my previous business card before being tempted by this offer. So Mr. Money Mustache is now up Five Hundred Bucks as well. Thus, while gaming the credit card system may not be fun or educational after the first card or two, it can be quite profitable when calculated on an hourly basis.

Ethically, I view it as a small win for the forces of good over evil, since I am transferring money out of a big bank’s profit stream, and into mine. And I’m reducing the profitability of this very bank practice of luring victims in with initial cash, which may decrease its prevalence over time.

Three warnings about this activity:

• It will probably cause temporary dips to your credit rating, since you are triggering inquiries on your account. But by eventually cancelling any unneeded temporary cards, and being sure to keep your oldest card active, you should still end up with a continually increasing credit score. I don’t care about my own credit score in the short term, since I have no borrowing planned. In the long run, however, I do want to keep it up in the 800s in case I ever want financing on a future house or investment.
• Also, I don’t recommend credit cards at all to anyone who ever finds the need to run a balance and actually pay interest. They are too dangerous and expensive to use as a source of borrowing.
• Finally, be sure to log in or call and opt out of all possible marketing from the credit card company within 30 days of getting any new card. They make money by selling your name to other bad guys, and opting out really does help. Despite having several credit cards, businesses, homes, cars and other consumer things, I get virtually no junk mail from outside companies – just occasional junk from the banks I currently do business with. With no newspaper or magazine subscriptions coming to my house, I find this junk mail to be an essential resource for starting campfires.

In the end, this new card gave me an excuse for an article and will pay for a good chunk of my upcoming snowboarding trip to Lake Tahoe. But this tactic is not for everyone – just the hackers at heart. I told Mrs. Money Mustache about my $500 total windfall so far, and this is what she said,

“I don’t want to know anything about all these silly cards – just keep me in the dark and let me know how much money we made once they are DEACTIVATED”.

Smart woman, but I’ll still have a chuckle when I deposit that $400 into my account.

Update: On February 12th, I logged on to check my balance and found that the rewards were now available. $403 smackeroos, which includes the signing bonus and the standard reward on one month’s worth of business expenses. I requested a check immediately, so it’s now in the mail.

Update 2: On February 23rd, I received the $403 check! The money is real!! So I put it back into the mail for deposit into my ING direct bank account (I could also throw it into my local bank machine, but the weather was crappy today so I decided to let the mailman do the work). Total time from application to Monetary Consumation was about one month – not bad at all.

Update 3: Do you want to game the system yourself while possibly supporting the MMM blog? You can now browse through a list of referral links I have started collecting to high-rewards credit cards, and see if any suit your fancy, by looking at the Credit Cards page I have set up. Just be careful out there – avoid annual fees, don’t do balance transfers unless there is no fee, and NEVER pay interest on a credit card balance!

*You can also redeem 25,000 points for a plane ticket worth up to $335, which could be a way of expanding bang for the buck, as long as their online redemption center shows the same flights at the same prices as the airlines.