Make Easy and Fast Money with Credit Card Arbitrage

We had a heavy heart when took down our page of 0% BT offers. A lot of work went into it and it was demoralizing seeing it become a victim of its own success.

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1) The cash can be excellent if you treat it seriously. I’ve read articles in mainstream magazines and newspapers about doing arbitrage with only a card or two. Yes, it probably won’t be worth your time if you treat is as a “neat trick” by only using the occasional 0% APR card offer that comes in the mail. But there is good money to be made if you manage it as a organized side-hobby. There are people with six-figures in online banking accounts using this strategy. This does not even take into account sign-up bonuses for cards, which can add up to hundreds or even thousand dollars per year.

And thing that is great about credit card arbitrage is that it scales well. Managing $100,000 does not take much longer than managing $10,000.

There is also a snow-ball effect as time goes on. One of the many variables that banks use when the calculate whether to increase your credit line is your current total. In essence, credit begets more credit. Many arbitrageurs are able to obtain a credit line at a multiple of their household income after several years because of this.

2) Massive credit line. As previously mentioned, arbitrageurs frequently are able to obtain credit lines the size of a multiple of their household income. Having a huge credit line is a benefit that will last years down the road, even if you’ve stopped doing arbitrage.

• This credit can be critical in starting a business. One of the main reasons people don’t act on the entrepreneurial urges is the lack of startup capital. Getting a business loan without any prior experience is almost impossible. Credit cards don’t have the best interest rate but businesses that were started on them are not uncommon - read the Forbes 400. Also, one of the most frequent causes of the failure of business is undercapitalization. For business owners, it might be wise to stock up on personal credit to use if an unforeseen cost arises.
• 30% of a credit score is based on credit utilization percentage. So by increasing your credit line, you’ll make your credit score more “durable” to future increase in debt.
• I have a friend who is a financial adviser at Merrill Lynch. One of his suggestions that many of his wealthy clients choose to act on is opening a home equity line of credit (HELOC) for emergencies. If a large sum of cash is immediately needed, the client is able to tap his or hers home equity instead of initiating a fire sale of stock and bond assets. Of course, HELOCs have a lower interest rate than credit cards. But HELOCs are limited to the amount of home equity one has and have fees. Ideally, this emergency line of credit would never be used.

3) Become knowledgeable about credit and get your financial life in order. Credit scores are increasingly important - not only do they affect what one pays for loans but credit checks are now being used to screen tenants and job applicants. The financial illiteracy of the typical American is frightening. A side benefit of playing the arbitrage game is that you learn what should have been taught to you in high school.

The game requires you to meticulous about payments therefore forcing you to get your financial life in order. I’m a lot more organized about money after playing this game.

1) You don’t have the discipline to not spend the 0% money. You shouldn’t be playing this game if you’re living from paycheck to paycheck or have a negative networth. There’s a good chance that you might find the money too tempting and spend it. This can be very dangerous given that you’d probably have an outsized credit line.

2) You are a bit forgetful about financial matters. You shouldn’t do credit card arbitrage if you occasionally pay your bills late. Companies are allowed to jack your 0% rates to 20+% with only one missed payment, so organization and attention-to-detail is key. Later in the guide we’ll go over how to set things up so everything runs like clockwork. I would like to note that doing arbitrage has forced me to straighten out my financial life.

3) You’ll need a significant loan soon, such as a mortgage. Credit card arbitrage takes a toll on your credit rating in several ways. During the fury of application, a “hard pull” will dock around 5 points, however not all pulls show up on all agencies. This is temporary and the penalty will be removed after six months. Having a high credit utilization also hurts your credit score. The penalty is almost non existent below 50% utilization and skyrockets 90% and above. So the credit score damage can be somewhat controlled In general though, it is advisable not to do credit card arbitrage if you’re applying for a mortgage within a year or so.

Credit card arbitrage

Several personal finance communities were the early innovators in the credit card arbitrage game. Many members posses an anxiety about its popularization would cause companies to somehow seek to shut them down and destroy their secret to make money.
Almost 40% of Americans missed at least one credit card due date over the past two years according to a national study. Providers are allowed to jack rates on all cards, not just the one missed.

Many consumers find all the empty plastic too tempting.

Preparation:

1. It’s a good idea to cash out any rewards you have. There have been some rare cases of arbitrageurs being too aggressive with their utilization %, companies freaking out and closing accounts. These are very isolated incidents and you can avoid this by keeping your credit usage below 90%. Still, it never hurts to be prudent.
2. Apply for credit line increases with your existing cards, but only if it takes a “soft pull”. “Hard pulls” put inquiries on your credit history. Inquiries from existing creditors doesn’t hurt your credit rating but they’ll look bad when you do your applications for new cards. Companies take into account the credit limits on your existing cards when they calculate the new ones.
3. Consolidate your credit cards. Most banks allow you to in effect move credit lines between your cards. Once again, companies take into account the credit limits on your existing cards when they give you a new card. If they see a card with a large credit limit, they’ll be more comfortable to give you a large credit limit as well.
4. Come up with a list of credit cards to apply for. CreditCardArbitrage.com keeps an updated list. The general target to do is 10-20 cards and 2-3 per issuer.
5. Business credit cards have some of the best terms and rewards. They also do not appear on personal credit reports. It is highly recommended that one applies for them. If you sell on eBay for profit, you have a business. Some also interpret that credit card arbitrage is in fact a buiness. Any individual can apply for them; you do not need a registered business or an EIN (SSN for businesses) from the IRS. Companies do not ask you to provide any documentation.
6. Apply for all the cards on the same day. There are computer problems that make online applications very easy, with RoboForm being the most popular.  The reason behind this is simple: most credit reporting services when doing an inquiry deduct same-day inquiries, so the more inquiries on the same day the better.  Some companies pull credit reports as soon as an online application is finished. Others send applications to the back office and take days or even weeks to process. It is common practice (but not crucial) to do the applications on a Tuesday or Wednesday around 9 AM EST when most eastern banks open. Monday is not recommended as companies are processing backlogged applications from the weekend.

Many credit card providers allow holders to deposit BT money directly into your checking account through ACH transfer. This is by far the easiest and best option, as it doesn’t require any work from you and you don’t need to wait for a check in the mail and wait for it to clear (thus more interest). Some always allow it (Bank of America), after three months (Chase) or never (Citi, AMEX). Some companies are not consistent (Discover, Capital One) with their policy so it is worth the call to check.

If ACH transfer is not an option, some companies allow you to use a balance transfer check. Make the payment out to yourself. These usually come with new accounts. Some providers allow you to do it directly from their website. Citi is very easy:

The above two are by far the most popular options and should cover you for 80% of the providers. The last option is a full-proof method of getting money out of those troublesome last cards.

Your credit balance will be negative if you overpay your bills. To get that excess payment back, some providers allow you to easily get credit balance refunds. So simply balance transfer funds from the troublesome card to a card with allows for easy credit balance refunds.

The most popular option is Citi. Just like with balance transfers, they allow you to do it from their website. They aren’t too picky about the negative balance being greater than the total credit limit either. Holdups, when they rarely occur, have been minor. An arbitrageur had his money held for a week and a half when Citi investigated the source of his funds. This was when he was trying to get a $40,000 credit balance on a card with a $5,000 credit limit(!). He got through fine.

The basics of credit card arbitrage are quite simple. I’m sure you’re familiar with the 0% credit card offers. I get about dozen a month in the mail. Being a financially-disciplined person, I saw no need to act on those offers. Now I have one.
Credit card arbitrage is about getting that 0% cash and putting it in an online savings account. Just like a stock or bond arbitrageur, you’re taking advantage of a price differential between two markets and collecting the spread risk-free.

There are advantages and disadvantages to doing this, which are discussed further in the guide.

Although the basics are not complex, what separates the professionals from the amateurs is how they go about this. There’s a deeper strategy here, and they center on the following:

1. Getting the most money possible. Obviously, the higher your credit line the more interest you will make.
2. Getting the money out. Not all banks will allow you to do balance transfers to your checking account. There’s a variety of ways around this.
3. Making sure everything goes smoothly. Credit card companies are infamous for exorbitant fees. Those who are knowledgeable, prudent and well-organized will set up a system that will allow them from making mistakes.
4. Controlling credit score damage. Knowing what boundaries not to pass will allow you to manage this.