Updated on 09.10.14

Introductory Credit Card Offers: Risks & Rewards

Trent Hamm

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.

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.

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  1. MoneyFwd says:

    This is an interesting variation on what I’ve read in a lot of other blogs. It would probably be the only way if the Credit Card company won’t cut you a check, although I hear that doing a balance transfer and getting a check from Citi is pretty easy.

  2. Sun says:

    Yes, if you have a Citi card, balance transfer is a snap. Just transfer whatever amount you want to a Citi card whether it carries a balance or not. After the money is deposited, go to your Citi website and request a refund. The whole process takes about two weeks and you don’t have to speak to anybody.

  3. Quang says:

    This remains me of the Credit Building Strategy I got at this free seminar, which focuses on building your credit score instead of making money. It involves taking out a $1,000 secured checkbook loan from a bank, going to a different bank, open up a checking account, and get another $1,000 secured checkbook loan… do that 10 times

    at the 10th bank use that to pay off the first bank’s loan… keep doing that and they said in a year you’d have a Monster credit score (successfully paid off $10,000 of credit early)

    I’m digging this creditcard strat- could it be too easy of $$ ?

  4. CPA1298 says:

    Be very careful taking cash advances; typically you will get charged a fee of 5% or so, which will more than eat up your pre-tax interest earnings. Get a no-fee balance transfer check (as Citi does), or have them direct deposit the money in your checking (as Chase does), or have the 0% card transfer the balance to a card without a balance; the card will have a negative balance and they will cut you a check to bring it up to zero.

    It’s really not worth it for a $3k balance; you need to be at least in the $10k plus range to make it worth the hassel and credit score damage.

    Again – DO NOT take a cash advance. Another reason – you will incur finance charges on the card, even just for a couple days it will sting, because it will be at 30%. There is no grace period for cash advances.

    Trust me, I’ve had over $40k in 0% balances at once.

  5. Tyler Corlen says:

    I think the method is pretty straightforward if you keep good records. I signed up for paperless statements for my cards and I’ve literally made thousands per year. The negative is the credit rating which does take a hit. The key is to time it so that you don’t plan on getting any laons while this is going on.

  6. Tyler Corlen says:

    Although many PF bloggers are against this practice, I think it’s a great idea if you stay on top of your records and you’re not in the market for a loan in the short term (because your credit score does take a hit).

  7. Joe says:

    Actually a cash advance is not recommended as many of the offers don’t offer a break on APR or fees. A balance transfer as you mentioned is a better deal, with Citi it is a menu item in their control panel to get it done.

    Research app-o-rama and you’ll find out other creative ways of getting balance transfer money out of other companies.

    Good day.

  8. raymond says:

    as the app-o-rama website says it is riskless. then when i tried it they proved it correct. then i suggest you try it to.

  9. WealthBoy says:

    I couldn’t have said it any better myself. I was going to mention avoiding using a cash advance and just depositing a balance transfer check right into your high-yield account, as well as watching out for the transfer fees.

    On a different note… I did this with my Bank of America credit card with no transfer fees. However, my credit score did drop from around 800 to around 720. I suspect it was probably a combination of maxing out the card as well as increasing my overall revolving debt utilization. This was about two years ago and I still haven’t gotten back to 800, but I’m up to about 760 now. I think the combination of time and a few credit line increases has helped to advance my score.

  10. The more I think about it, with so many things going on, I’m glad I quit using credit cards. It seems I end up spending more time trying to save money and make sure the bill is right, than I do trying to make money. Debit cards work great.

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