Making Money With Your Credit Card: How It’s Done and What the Risks are

August 2, 2007 By Matthew Paulson

If you’ve always paid your bills on time, maybe have a credit card, a student loan and a car payment, chances are you have pretty decent credit unless you did something to mess it up in the past. One of the advantages of having a strong credit rating is that you’ll receive a lot of credit card offers that offer 0% APR for up to a year after signing up with the card. These cards are a great way to dramatically reduce the interest you’re paying if you have a balance on another card, but they also have another peculiar use, you can use them to make money. Here’s how it works.

The basic idea is that you are getting a no interest loan on a few different credit cards and putting the money you borrow into a high-interest savings account. When the introductory rate of 0% is over, you take your money out, pay off the loan and keep all of the interest that you’ve earned. Let’s say that you can get a credit card with a limit of $10,000 that has a 0% introductory APR for the first year for balance transfers. You put the cash into a high-yield savings account earning 5.25% APY, and at the end of the year you come home with $525.00 you didn’t have before, which will look a lot more like $375 after you pay taxes on it.

You’re essentially using your credit rating to earn some extra money. Banks are making you very good offers because they know that you’re very unlikely to default on the loans they give you, so you take those great offers and use them to your advantage, it’s as simple as that.

Unfortunately, there are always some downsides and risks which need to be considered when pursuing such a financial venture. The biggest risk is that your credit score is going to decrease while you have the loan at. The reason for this is that you are borrowing more money, so your debt utilization percentage will increase. If you’re going to buy a house or make another big purchase on credit any time soon, it’s not worth it to play the credit card arbitrage game. You’re also dinged for applying for a number of new credit cards. If you’re not careful, you could lose 100 points off your credit score.

There’s always the risk that you’ll make some sort of mistake and end up owing the bank which offered you the card some money. If you don’t pay off the loan on the right date, miss a payment, or don’t read the terms carefully, you could end up owing some significant interest to the bank and all of your gains will be lost. If you do decide to go ahead with and use a credit card to make money, you have to be extremely diligent in making sure all of the proper transfers are done and that they are done at the right time.

If you’re extremely diligent and don’t need a stellar credit score any time in the next year, you’ll make a few bucks here and there off your good credit score. You won’t get rich by any means but it’ll be $500 or $1000 that you didn’t have before. And remember, keep careful records and be diligent with your actions, otherwise you’re asking for trouble.

Don’t just accept the first Credit Card Offer that comes along. It is important to do the research and Compare Credit Cards to find a Credit Card that meets your needs. And always look at a Credit Card’s fine print before signing the dotted line.

Posted in credit cards, making money