I bought a strata unit with a credit card cash advance once. I’ve used the same technique for a deposit in a hurry. Until recently I was a fan of lots of credit cards with high limits — providing you knew how to manage a bank’s Debt Service Ratio (DSR) calculations.
You see, banks assume your credit cards are maxed out all the time and factor that into your borrowing limit. What if you listen to Paul Clitheroe, Robert Kiyosaki or other wealth advisors [like me? ;)] don’t carry a balance on your credit card? Surely that counts for something?
Often not. The major banks’ DSR assume you carry the limit because you can. Look up “contingent liability” someday. So if the DSR looks tight you might cancel or reduce your limits before applying for the loan.
Anyway I no longer favour lots of cards with lots of limits. You ask why (go on I’ll wait)?
Three little words…
…Fees, Fees, Fees.
I have been a Citibank customer for years. It gave me a nice feeling to have Big US Bank credit cards in my wallet. But US banks are “early adopters” of fees and then the Aussie banks follow.
In addition to annual fees and high interest rates, I have the priviledge of: late payment fee, over limit fee, foreign currency conversion fee and cash advance fee. Credit cards are not about convenience where a smart operator can take advantage of a system designed for balance-carrying sheep. The cash advance fee is 1.5% of the drawdown regardless of how long I keep the money.
Now Westpac is following suit with similar fees and my experience is the other banks can’t resist a good revenue stream.
Time to find a new source of quick cash.
3 responses to “Credit Card Danger”
Australian is enjoying a very low interest rate in comparison to other developed countries such as US or UK, even Europe.
You are right that there are too many fees incurred if you are a balance-carrying sheep.
For example, there is balance transfers fee if you are transfering a balance from one card to another. So you’ve to factor in such fee even if there is a 0% interest balance for 6 months.
If you are looking for a longer period to settle your credit card balance, a fixed rate for life balance transfer credit card could be a much better option.
You best bet is to not go over 30% over your available credit limit. Once you do this your credit score will be impacted negativly. Even if you don’t use the card, don’t cancel it. If you cancel your card, your credit history with that card goes out the window. You best bet is to just leave it alone.
Debt Free Dave
http://getprequalified.com
Then again.. What does high credit ratio really good for? I only believe that if you can pay what you borrow, then you are an honest & reliable person and the credit ratio calculation system should without doubt count that manner into the score somehow. Any suggestions?