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“Stoozing” is the practice of borrowing money at a 0% interest rate and investing it to make money. Typically employed in conjunction with introductory credit card offers, stoozing and its variations are employed to make relatively small amounts of money. Changes in banking practices and in the government regulations that control banking and credit have made it more difficult and less profitable to “do a stooz.”
In the latter part of the 20th century, the US banking industry was deregulated in large part, and competition for business heated up. Many banks began to offer special incentives to induce consumers to apply for their credit cards. One of the most popular was an introductory period, generally between three and 18 months, during which no interest would be charged on purchases and balance transfers from other credit accounts. Stoozers would apply for these cards and then charge a cash advance to the new card, depositing the cash to a high-interest savings account or short-term certificate of deposit (CD). At the end of the period, the money would be withdrawn and the principal repaid to the credit card account, leaving the stoozer with a small profit.
Most consumers who opened these new accounts took moderate advantage of the introductory offers, transferring existing balances from high-rate accounts and benefiting for the few months of the incentive. Some consumers, however, saw the potential. Among these consumers is said to be a man in the United Kingdom named Stooz, for whom the practice is named. Apocryphal stories abound of people who’ve made thousands of dollars stoozing.
Stoozing requires a certain amount of discipline. During the 0% interest period, for instance, even though the interest rate charged is 0%, payments are due on the account every month. A single missed late payment will generate late charges and penalties that might outweigh the anticipated profit; late payments may also negate the 0% interest incentive altogether. Stoozers also must select absolutely safe investments, like savings accounts, otherwise they may not have the principal to repay the credit issuer at the end of the 0% interest period.
The profits realized by stoozers might be small, but some credit card issuers have taken steps that have had the effect of discouraging stoozing. For example, most balance transfers and cash advances might still carry 0% interest rates during the introductory periods, but will generate a fee, generally 2% of the total amount transferred or charged. When interest rates on savings accounts and short-term CDs are low, this is generally sufficient to eliminate the possibility of stoozing.
A practice related to stoozing is rate tarting, which involves applying for a credit card which offers a low introductory interest rate and transferring balances from existing, higher-rate cards. Rate tarting doesn’t typically offer the opportunity for profit, but it reduces the borrower’s debt service rate. Credit issuers dislike rate tarts because they — the lenders — expect to earn money from credit account balances once the introductory rates have expired. Rate tarts, as their name implies, display no loyalty to a lending institution, but work to move their outstanding balances to accounts offering the lowest rates.
Stoozing and rate tarting both are legal practices, but the credit industry tends to view stoozers and rate tarts with disdain. To be successful, both stoozers and rate tarts must have good credit, without which they’d have a harder time qualifying for the credit accounts they intend to exploit. Tightened credit practices adopted after the great recession of the early 21st century, for instance, make it more difficult to qualify for any credit account that can be stoozed. Credit issuers will only offer those incentives to the most credit-worthy consumers.
Likewise, stoozers must be scrupulous about timely payment, not only on those accounts they’re exploiting, but on all accounts. Some credit card contracts in the US call for punitive action, including revocation of any incentive programs, if the consumer is late with any other credit obligations. Stoozers and rate tarts must therefore read credit agreements carefully, making special note of the different punitive actions that can be taken by the credit issuer and what generates such action.
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