One of the reasons our credit card arbitrage is successful is the large credit limits that we have on some of our cards. While I was flattered that Steward thinks we are filthy rich to have such high limits, they are actually due to careful planning and some simple strategies.
A reader, Dave, was trying to understand how I run our arbitrage plan. I explained that when the introductory rate runs out on one card I generally apply for a new card. He asked the following:
If you keep the first card open and just apply for a different card, couldn’t you have just applied for that second card earlier, borrowed more money, and earned more? Or do the companies limit the total amount you borrow on all their cards and not just impose limits on a per-card basis?
The card companies usually cap the total amount they will extend in a credit line. In addition I’m trying to preserve the ability to run the strategy as long as possible. So I use it for the intro period, then get a new card with a new intro period and repeat. The bigger the credit line the better my arbitrage strategy becomes.
Bigger Credit Lines
One of the strategies that we have used successfully to get larger credit limits is the reallocation of our credit lines. We just completed a reallocation of our credit lines with one company this weekend to prepare for a new balance transfer. Here’s how:
Open a new card with a company that you have other cards at. We have lots of cards with American Express, including the Blue Cash Everyday® Card from American Express and the Starwood Preferred Guest® Credit Card from American Express.
Request a credit line increase while you are activating the card. Sometimes I do this, sometimes I don’t based on the credit line we first get. On the card we reallocated this weekend, they immediately offered a credit line increase when we called to activate the card.
Reallocate balances from the old cards. Here’s an example of the reallocation we did this weekend.
I had two cards that looked like this:
- Card 1 (Old card): Credit Limit $22,000
- Card 2 (New card): Credit Limit $6,500
Once I reallocated, it looked like this:
- Card 1 (Old card): Credit Limit $1,000
- Card 2 (New card): Credit Limit $27,500
Keep the old card open with a small limit. This will preserve the issue date for your longevity which ultimately helps your credit score.
Complete the balance transfer. The result will be a bigger balance transfer with the new card. Instead of having a $6,500 credit limit available I now have a $27,500 credit limit available. Each time I do this, the credit lines get a little bigger. It has a compounding effect over time.
By increasing the credit limits, we’ve been able to do larger balance transfers over time. The benefits of a larger balance transfer include:
- Earning more interest on the money in the savings account.
- If there is a small balance transfer fee ($75), the effective percentage rate on the overall total is reduced.
- We have a smaller number of balance transfers to monitor.
The ability to reallocate credit lines varies by company. It is easily done online with American Express. Bank of America requires a phone call. Chase has allowed it when we close the old account and Citi has allowed it for some of our cards, but not others.
It blows my mind how easy it is to get someone to loan you $35,000 on nothing but a signature. I’m worried about the $50 I have on Prosper!
Don’t the card companies find out what you are doing. After all their sole purpose in life is to make money from us, not the other way around.
Or are they so many card companies and cards that you can go on ad-infinitum
There is no way that I would play russian roulette with the likes of American Express or Chase. You do realize what kind of crooks that you are dealing with, don’t you?
@ Ron: I agree it’s a signature. But with a proven track record (credit history) I think that lenders place a different value on the credibility behind the signature.
@ Father Sez: I’m sure the companies are completely aware of what I’m doing. Most of the time when we reallocate balances, they offer to do a balance transfer over the phone. I usually take them up on the offer if they will raise the credit limit even higher. They’re banking on me to make a misstep at some point so they will earn interest. Statistically speaking most people do pay some interest so they are all for it.
@ Lost Cause: I guess I consider the credit card companies to be big businesses that operate in a regulated industry. They have terms and conditions and I follow those. I don’t agree with all of their business practices, but I feel comfortable with the risks that I take based on the terms that the cards are offered. However, I do understand the passion that some people have against the companies. I’d like to believe that I don’t get emotionally attached to banks… I consider it business (for the most part!)
Arbitraging has worked wonderfully for me too.
The real key to arbitraging is making sure to pay down the balance before the intro period ends, which many people get burned by.
I mistakenly didn’t finish paying down a balance on one of these transfers and they went back retroactively to try to charge me interest on the entire balance for the entire period! Luckily, they reversed their decision and I only had to pay a small finance charge on the remaining balance.
Nice tip on the credit limit “massaging” too. I’ll put that one in my arbitrage bag of tricks.
@ Cindi Lou: Wow, you are lucky they reversed the decision, that could have been a really expensive mistake!
Quick question: What do you do once this second card has expired? You have total credit line of 28,500 with the company, what would be your strategy on getting a 3rd card with similar terms? Would you try to ask for a 3rd card with a very low credit limit and then transfer the second line over to the third, and then close the second card?
If you do this over say, 7 years, could you potentially have 6-7 cards from the same company? or would they force you to aggregate and close some.
I see no mention of Capital One anywhere on your site. I have always been suspicious of them and their practices, so I have no cards with them. Consequently, I find this very interesting.
Any other companies you would recommend NOT getting a card from?
Isn’t there a fee to transfer the balances?