One of the reasons our credit card arbitrage [1] 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.
Background
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 [2], including the Blue Cash Everyday® Card from American Express [3] and the Starwood Preferred Guest® Credit Card from American Express [4].
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.
Opportunity
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.
Companies
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.