0% APR Credit Card Arbitrage Quick Tips

by golbguru on March 7, 2007

If you are worried about what happens to your credit score when you apply for a new 0% APR card, then this tip is for you.

Here is what myFICO.com says about factors that do not affect your credit score:

Your own credit report requests, credit checks made by businesses to offer you goods or services, or inquiries made by businesses with whom you already have a credit account do not count toward your FICO score. Credit checks by prospective employers also do not count. These types of inquiries may appear on your credit report, but they are not included in your FICO score.

Read that carefully, it says “…inquiries made by businesses with whom you already have a credit account do not count toward your FICO score

For example, if you already have a Citi card and if you apply for another Citi card (or multiple cards) to avail a 0% APR offer, the new credit inquiries are not going to hurt your credit score. :) That’s good right? At least that is what I understand from the above information.

What about an app-o-rama (applying to a lot of credit cards at once), will that hurt your credit score?

My good friend, Sun raised this issue on my previous post about credit scores and I thought about clarifying a few things here. Apparently, many people apply for a lot of credit cards in one fell swoop, banking on the fact that there is some mechanism in the FICO score that does not account for multiple inquiries done at once. That’s not entirely true and it’s important that you understand it. Here is what may be confusing people (source):

Looking for a mortgage or an auto loan may cause multiple lenders to request your credit report, even though youre only looking for one loan. To compensate for this, the score ignores all mortgage and auto inquiries made in the 30 days prior to scoring. So if you find a loan within 30 days, the inquiries won’t affect your score while you’re rate shopping. In addition, the score looks on your credit report for auto or mortgage inquiries older than 30 days. If it finds some, it counts all those inquiries that fall in a typical shopping period as just one inquiry when determining your score.

It’s important to note that this feature is only applicable to auto loans and mortgages. This is not applicable to credit cards. Here is what the website says about credit cards:

If you apply for several credit cards within a short period of time, multiple inquiries will appear on your report. Looking for new credit can equate with higher risk, but most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period of time.

So, yes, an app-o-rama has the potential to hurt your credit score (unless you follow the tip that I mentioned at the start of this post). While it’s true that credit inquiries have the least effect on your credit score (as noted by another blogger here), it is still important to understand these things before you go about doing an app-o-rama for 0% APR credit card arbitrage. Inquiries hurt different people in different ways. Don’t do these things just because others are doing it that way.

It will be in your interest to read all the factors that appear here: myFICO Credit Inquiries, before you start getting into this 0% APR arbitrage game.

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{ 9 comments… read them below or add one }

1 Dr. Housing Bubble 03.07.07 at 3:15 pm

Excellent tips. I wonder if this applies to affiliate cards; for example a CITI/ATT card.

2 golbguru 03.08.07 at 5:27 am

Dr. Housing Bubble: I think it will work because for a Citi/ATT card…ATT is just a brand name on the card, while Citi is the real *bank* behind the card. But, I am not sure about this. I will read/ask more information on this and update it in the post. Thanks for mentioning it.

3 Mike Toreno 06.17.07 at 10:05 pm

I’m pretty sure that the “inquiries by creditors with whom you already have a credit account” means account maintenance inquiries and account reviews and things, not you applying for new credit with a creditor with whom you already have an account. Look into it further. Think about it, why would an inquiry made for the purpose of getting a new card be treated differently just because you already happen to have cards at the same place.

As far as I’ve ever been able to figure out, you take a hit for “excessive” inquiries, not for each inquiry, and once you take the hit you don’t get hit further, or maybe you do but not with every inquiry, rather some number of inquiries constituting a new level of “excessiveness”

4 Jonathan 09.06.07 at 8:13 pm

Hi Golbguru, just found your e-mail regarding this.

“I’m pretty sure that the “inquiries by creditors with whom you already have a credit account” means account maintenance inquiries and account reviews and things, not you applying for new credit with a creditor with whom you already have an account. Look into it further. Think about it, why would an inquiry made for the purpose of getting a new card be treated differently just because you already happen to have cards at the same place.”

I would have to agree with Mike on this. Here FICO is essentially talking about “soft” vs. “hard” pulls.

“Apparently, many people apply for a lot of credit cards in one fell swoop, banking on the fact that there is some mechanism in the FICO score that does not account for multiple inquiries done at once.”

Actually, I think the main idea of the bunching-up method is that it tries to trick the creditor into not noticing your other inquiries on the same day.

For example, if you apply for 5 in one day, card #5 might not see the inquiries from cards #1-#4 if they only happened within the same hour. So each card will see the same nice credit score.

Now, come the next day, all those 5 inquiries would indeed be recorded and your visible score would be lower. Hope that made sense.

5 golbguru 09.06.07 at 9:08 pm

Mike and Jonathan: About the inquiries, it makes sense the way you guys are explaining it. The last time I did this arbitrage thing, I think I didn’t have inquiries corresponding to the new cards - but, it’s been a long time since. Let me follow this up with some new cards and see what happens.

Jonathan: @App-o-rama. Yeah, I think I understand it now. Thanks.

6 Credit Card Arbitrage 11.01.07 at 10:56 am

Remember, all the dings due to a credit lookup (usually around 5 points) gets removed within six months. So another benefit to doing an “App-O-Rama” is that these penalties are managed. Someone doing an unorganized arbitrage by sporadically applying for cards would not be able to plan ahead as effectively. Plus it’s nice to do it all in one go, so that you’re doing the same process (applying for cards, getting money to bank, etc.) at the same time.

7 Brian 04.13.08 at 12:28 pm

There are many 0% APR Credit Card offers to pick from at http://www.gozeropercent.com

8 Au Pair 12.26.12 at 11:22 pm

Remember, all the dings due to a credit lookup gets removed within six months. So another benefit to doing an AppORama is that these penalties are arrange. Someone doing an not organized arbitrage by sporadically applying for cards would not be able to plan ahead as effectively. Plus it’s nice to do it all in one go, so that you’re doing the same process (applying for cards, getting money to bank, etc.) at the same time.

9 a1563906 02.07.13 at 10:29 pm

I’ve said that least 1563906 times. SKC was here…

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