Introductory Credit Card Offers: Risks & Rewards

One advantage of building a strong credit rating is that you begin to receive many credit card offers with introductory 0% APR for six months or a year. These cards are great if you’re carrying a balance on another card; request a balance transfer when you sign up and the interest goes away.

Of course, any time that a bank offers to save you money, there is a way to use that offer to make money for yourself. First, apply for a credit card where you can get a strong credit limit. This first card is not as important as the others; don’t worry too much about a long-term APY. As soon as the card is opened, withdraw as much as you can as a cash withdrawal from the card and deposit that amount in a high-yield savings account. Then, obtain a second card, this one with a long-term introductory 0% APY, and transfer the balance from the first card onto the second one.

Let’s say that the first card allows you to get a $3,000 cash withdrawal and then you transfer that balance at 0% APR for a year onto the second card. If you put that money into HSBC Direct, earning 5.05% APY, you’ll earn $151.50 for spending an hour or so juggling cards. Plus, at the end of the year, you can get a cash advance from this second card, then transfer that entire balance to a third card, where it can sit for a year. If you can get another $3,000 advance, then transfer and wait another year, you’ve made a total of $462.15 for maybe two hours worth of work. If your credit is strong, you may be able to get even larger advances and thus profit more than that.
Please note: HSBC Direct Savings account 5.05% APY is currently expired.

What you’re doing here is essentially using your own good credit rating to earn some money. The banks are making strong offers for your business because you show them that the credit they offer you is very low risk, so then you take advantage of those strong offers and earn some money for yourself in the process.

Of course, there are significant risks with such activities. The biggest one is that this tactic can bite you very hard if you’re not diligent with moving the money around. If you don’t transfer the balance immediately after a cash advance, or if you forget to pay back the amount you advanced (or forget to transfer it on) at the end of the introductory period, you can quickly lose what you gained in finance charges.

PFBlog describes a second major risk of such activities: it can seriously hurt your credit rating if you’re not careful, even if you’re on fully stable ground. In his example, he lost almost 100 points on his credit rating by opening too many accounts. Of course, he was doing this to the point that he was earning thousands a year from moving the cash around, but it is a risk to consider if you’re looking to possibly borrow money in the near-term future.

The key to making this work is the same as the key to making most personal finance work: keep careful records and be very diligent and careful. Once you begin failing to do this, you’re asking for trouble to sneak up on you.