Credit line arbitrage: strategies, FAQ , links, AOR info, etc. RE making $$$ from credit , updated 2/08

Thread rationale

It seems it's time for a consolidated thread discussing the use of credit line promotional rates to make money. There have been many, many threads here on FW and elsewhere over the years that touched on this subject. Please help increase the value of this thread by adding other pertinent links to it, and I will try to keep the OP updated. Meanwhile, I'll keep this post largely factual, and keep my own opinions on "best practices" for the following post.

Background info

For many years, credit card companies have enticed customers to either open new accounts, or rev up usage on their existing accounts, by offering promotions that allow for borrowing their money at much lower interest rates than their standard agreements allow for. Since FW's inception and earlier, many FW members have used various means to profit from these offers. In recent years, as more have tried these strategies and CC companies have become more automated (and often more sophisticated), there has been a dramatic increase in reported problems with these strategies.

Credit line arbitrage: the "standard technique".

The most commonly cited FWF strategy works roughly as follows:

Step 1: Receive an offer of (for example) 0% on BTs for one year from a $25K Chase line, with a $50 BT fee.

Step 2: Transfer all or almost all of the card's credit limit into a bank account (when available as on option), or to another credit card account (some offers require this). Some ways people have accomplished this step are detailed here .

Step 3: Stash that money in a safe investment, earning returns for the duration of the promotion.

Step 4: Pay the minimum monthly payments for 12 months (generally 2-3%).

Step 5: When the promo period ends, pay off the remaining balance with proceeds from the investment, leaving yourself with $0 balance on the card.

This basic strategy can then be repeated with other cards, the same cards, or even with multiple cards simultaneously. Some things to note about this approach:

-It ignores effects on one's credit score, or other reactions from lenders. In my opinion, this is a mistake. Nevertheless, some have managed to do this for years without adverse consequences.

-It assumes that the promotional rate is available for a limited time. Most very low offers are, but some are not.

-It assumes a fee for doing the transfer. It used to be that many BT offers didn't require a fee, now most do. (Also, the amount of the fees has increased notably in the last year, often going as high as $75.) If there is no fee, then there's no real incentive to do one big BT--splitting them up works well too.

-BT cards should ALMOST ALWAYS be segregated from cards used for purchases, UNLESS the terms of the BT require otherwise (in which case purchases should be for amounts as small as possible). The main reason is that once you're carrying a balance, purchases have no "grace period"--meaning that you're paying the purchase rate from the moment you buy anything. Even worse, the payments you make always go towards the lowest rate first. That means that if you have a 0% offer, and buy a $1,000 item at the purchase rate of 12%, then you'll keep paying $10 per month to finance that purchase until the ENTIRE BT is paid off. There are a few exceptions, as manuel notes below, but these are rare.

-The promo rate offers require that strict conditions might be maintained. In particular, late payments on the card, OR EVEN ANOTHER ACCOUNT, can cause the rate to be "jacked" up to 30% immediately. Anyone who isn't very careful to adhere to ALL these conditions is asking for major hassles.

-It assumes that the funds are invested in something ABSOLUTELY SAFE. If a payment is missed, the rate gets jacked, etc. funds should be readily available to pay it off.

Variations on the "standard technique"

There are MANY different variations on the standard technique. I will list just two options to start, and we can add more as the thread grows.

-Partial utilization/"Rollling maximization" strategies. The standard technique simply maxes out a credit line, and pays off the minimum each month after. This variation uses only a fraction of the line--generally 50% or less--OR pays off the FULL balance before the close of each billing cycle, only to draw it up again immediately after the cycle closes. The main reason for this variation it to keep one's credit score from tanking (it will ALWAYS drop, and often significantly, if one has a line report to the credit bureaus showing more than 50% of their available balance being used), and/or to keep a lender from getting nervous about "high risk activities."

-Coupling BTs with a HELOC or other LOC. The standard technique pulls cash from the CC companies, then parks it in some investment (money market, short-term CD, etc.) until the money is due back to the line issuer. This variation takes a line of credit, typically a equity LOC secured by the home, and uses BT money to pay down that line. When the money is due back to the CC company, the HELOC is simply drawn back up again to pay it off. In so doing, a standard competitive HELOC with, say, a prime -.5% rate would effectively yield 5.5%, a much higher rate than short-term money markets would yield. At the same time, one can more easily pay off the balance, simply by drawing on the LOC. For more on HELOCs and how they can be used, see this thread and its links, and this well done website.

Increasing credit (and goosing returns!) via the credit "Application Spree" / A0R / "App-0-Rama"

At least since the 1990s, several FWF members have bundled credit applications together so as to maximize the prospects for greater credit on better terms while containing associated damage to our credit profiles. In 2004, FWF member SUCKISSTAPLES coined the phrase "Application-O-Rama" to describe his own version of such a strategy. Since then, references like "A0R" and "App-0-Rama" have entered the FW lexicon, loosely describing various implementations and usages of this technique.

The core idea is to pick a time when's one credit score and profile are relatively good, and then apply for many new credit lines and/or line increaes all at the same time, so that the creditors will all see the "good" profile (before many credit "inquries", larger credit utilization, etc. does its damage), and accordingly award high line limits and generous promo terms.

While there are many reasons one might want to persue an A0R, the rationale that seemed to capture the imagination of most FWF members was to enhance the exploitation of low- or no-interest BT offers. Note that here at fatwallet, the term "A0R" is commonly confused with credit arbitrage / investing promotional rate money. THESE ARE ENTIRELY DIFFERENT IDEAS.

Many FWFers have combined the A0R and various credit investment techniques to try to maintain as much low/no interest money as possible. Several have posted threads about their own experiences. The most recent detailed threads I know about as of this OP are here and here .

Related useful threads

-Info on getting and keeping high credit scores is here.

-Thoughts on getting higher credit limits are here

-Information and experiences on getting LARGE credit lines is here.

-A list of creditors that allow the reallocation of large credit lines is here.

-A thread dedicated to recording and discussing instances of "adverse action" (cut or closed lines, loss of promotional perks, etc.) and their causes is here

-A thread devoted to getting your BT money into checking accounts is here .

(A final note on the origins of this thread, for anyone interested. In the no-fee CC BT deals on new accounts thread, popechild had some questions about investing money from low- and no-interest CC balance transfers. When I asked him to keep questions/discussions out of that thread, he politely pointed out that others had already been directed to that thread for such discussion. The last thread asking questions about this issue confirms popechild's point, and the FWF sticky thread links to taylor's cc thread, which also lists that same "no-fee CC" thread as the sole heading under "Balance transfers.")

Edit Updated to correct language about purchases coupled with BTs (thanks manuel), to add more links on HELOC per popechild's request, and correct typos.

Edit 7/06: Useful links section added, thread origins section moved to bottom.

Edit 10/06: Fixed typos, added link to getting BTs into checking accounts thread.

Edit 02/08: Changed title, added links.

Having tried to lay out the basics in my OP, here are some more subjective thoughts based on my own experiences and observations.

(A word on my own situation, to help readers judge my POV. I've been investing with BTs since the mid-90s, and have done heavily since about 2002. I currently float an average of between $5-600,000 of debt on CCS and LOCs, which is all debt generated by purchasing income-producing real estate. For more insight into my own goals and techniques, see this currently archived thread.)

Be VERY CAREFUL to make sure you make ALL required payments. Using CC promos can be a powerful tool, but the whole enterprise can come crashing down VERY quickly if any mistakes are made. In particular, make sure you have a system for getting ALL your minimum payments to EVERYONE in a TIMELY fashion. The easiest and probably best way to do this is with an automated billpay system, which allows you to "set and forget" monthly payments in advance, and have them made electronically at the appropriate time.

Don't undervalue your credit. The current conventional wisdom at FW seems to be that credit scores aren't any big deal. It is true that IF the above rule is followed, so that no payments are ever late, then much of the damage that can be done to credit profiles by using 0% money is reversible in fairly short order. But after an increase in the influence of credit profiles in recent years, yours is ABSOLUTELY CRUCIAL for reasons that go well beyond the traditional ones, like getting a good mortgage rate. A credit profile can determine whether you get a job, what insurance rates you get, what mortgage rates you qualify for, what student loans you can get, generally what hot financial deals you're targeted for, and of course, what other tasty CC offers you receive. So, it is FOOLISH to put it at risk for the sake of a few extra BT $. If in doubt, don't risk messing with your credit profile!

Take the long view. Many make the mistake of thinking only about their credit profile, BT options, etc. over the next 6-18 months. But this discounts the fact that this game can be played for the long haul--and, if one if careful, for progressively greater stakes. For example, I might be able to choose between a $75 signup bonus, and keeping enough inquiries & new lines off of my report to take an existing $20K line and double it to $40K. While that $40K line may not make me any money today, it might very well bring with it a great offer next year (say 0% for 12 months.) By setting myself up now to prepare for these options, I can save FAR more by using this extra line flexibility next year than I might by "selling" my credit for a relative pittance. Note I'm NOT saying don't ever sell your credit. Even though my credit earns me four figures every month, I'll still bite for an exceptional deal (like the Universal laptop deal from a couple years back.) But one should measure twice and cut once on this stuff, IMO.

Consider "rolling" and "partial" strategies. A stock market cliche is, "bulls make money and bears make money, but pigs get slaughtered." In this BT game, pigs are increasingly getting slaughtered too. The two most recent detailed A0R threads at FW--linked above in the OP--show just how much havoc even carefully planned AORs can wreak. My own view--which is grounded in years of observation and millions in BTs--is that by more cautiously and conservatively managing one's BT investments, most of these problems can be avoided. Chief among these is to keep OVERALL AND INDIVIDUAL credit utilization, AS REPORTED TO THE CRAs at reasonable levels--the lower, the better. In particular, I almost never carry >50% on any one line for any length of time, and I roll BT offers over between credit cycles wherever possible. Thus far (knock on wood), I've had no problems with BT investments.

Thanks Dave! In case you catch any flack for posting this info "again", count me as someone who's spent hours searching for old threads detailing how this works and never found a succinct explanation. There are plenty of threads detailing "lowest rates" and "best CC BT terms" etc., but most around here probably know the basics well enough to not need the how-to. This is perfect!

If you go into any more detail, I'd love to find out more about the HELOC option. Specifically, how does paying down the LOC with the BT give you a higher yield than the straight BT? I probably need to google a refresher on how HELOCs work, but could you give a simple example of how the HELOC process would work?

I<<n addition there are scenarios like the mbna 10% back cards - I had 32K or so on one of them, the last 3 months or so I started charging qualifying stuff on it - paid interest on the purchases but the 10% back far offset the interest in the limited term of the offer. As promos and 0% offers often come together I doubt this is the last time I'll see this.>>

Wouldn't your net gain be greater if you boomeranged the 32K off other BT offers and back to MBNA w/billpay to avoid interest?

edit: Read your post below Manuel....you're right interest on the $250 is $1.65/mo (at current 7.9% for example), but gets progressively worse each month...if you have other cards that pay to BT, like Citi or BofA Financial Rewards (which Fleet has become), you can earn $5/2.5K of BT, which essentially pays you to move money around. So far I've earned over $100 BTing <20K a total of three times if I recall correctly. I see we think alike sometimes

edit2: Without taking more bandwidth since my comments will only be OT, I can't agree more about RE being a bit risky at this time....something WB said awhile ago that the RE market is saturated with easy money that can be moved on a hairpin trigger's notice....something along those lines. <I know> he was referring to hedge funds heavily leveraged in RE....funny that we disagree so much about macro views but agree on some fundamental investment points.

Interest was trivial - less than a $1 for the first month - against $23 or so in taxfree credits. Really should have started this earlier, would have been quite profitable 6-7 months before the end of the 0%. This was the limited form of the 10% card though, didn't find the 250 a month or so that easy to reach - and resisted building up gift cards to get 10% back.

MBNA has been one of my mainstays for 0% and I can't imagine leaving 32K+ free in CL to use for billpay - would rather have that working for me all the time as long as they have 0% offers. And just as I don't find enough 0% offers to be able to run at below 50% of CL, I also don't find 32K or so one's to use for boomeranging.

Think the 50% above discussion has been done to death at FW though, and I was really just trying to bring up that sometimes charging on a 0% card makes sense. Not often though.

There's really two sides to this equation(3 if you include credit score), one is the rate you have to pay(lately 0%+anyFees), the other is the rate you get(hopefully high).

However if you have reasonable access to cash - other savings and HELOC(preferably both) it's possible to do a little better than ing/EB rates. In my case I'm still floating stuff like CDs and SBs from 2-4 years ago - with rates averaging around 5%. If I hit a perfect storm/AccountReview scenario I'd have to pay some early cashin penalties and/or go on the HELOC to avoid much higher rates but I could do it.

In addition the HELOC is a great way to occasionally partially cleanse my CR, and then dive back in again.

Any other ideas on ways to increase the return side of the equation - that don't violate the basic tenent that one might be forced to pay back most or all in a hurry???

As I think we've discussed before RE scares me - somewhat irrational I'll admit - I'm a reluctant owner and have no interest in more. Using CDs and SBs I'm lucky to break 400 a month but I'm floating a lot less money than you.

Understand your point about intro lines and the CR hit, but aren't most of the OPEN line no fee 0% BTs only available to selected folks - certainly been my experience at bofa and mbna?? In the bOFA case I think the responses to my post were overwhelmingly that they didn't see it. Did run with the principal bank 0%s for a while.

Do worry some about the HELOC/LOC angle, not sure but in a true perfect storm I think these might get yanked away as well. I'm a fairly conservative investor outside this strategy so I could sell some munis, etc. and pay off the CCs if I had too. EDIT: If I were a 100% equity type I'd probably be less aggressive with BTs.

Don't think you mentioned it but it's worth noting that for MFJ folks there's a lot of ways to work both credit reports, and scale up a bit - although it can involve some stern look from the spouse.

DaveHanson said: (like the Universal laptop deal from a couple years back--anyone have the link?)
http://www.fatwallet.com/forums/arcmessageview.cfm?catid=52&threadid=189431

Think one's marginal rate is also a big factor in the tradeoffs between 0% offers and other deals. Know from past posts that you've managed this wonderfully, I aint been so successful. This makes the $100 credits and $150 gift cards and Cash Back options awfully attractive, and things like bank bonuses relatively unattractive. Happy to make what I can taxable but I am willing to ding my credit for nontaxable money - and the bar has risen in the last few years from $20-50 to 100+.

This is also where - think tooshy mentioned this in another thread - it's very attractive to build up a core of SBs nurse it along for many years. Then in the happy or unhappy event that one finds oneself in a much lower tax bracket cash them in.

Does anyone know of other taxdeferred options like SB, that are still somewhat liquid - kinda?

Existing line no-fee 0% BTs are indeed rare, which was my point above. In fact, I can't recall the last time I got such an offer.

My existing BofA "Rewards" Visa offered me one recently, but just for 3 or 4 months. And they offered me a CLI at the same time, nearly doubling it. Both "out of the blue."

An 'extreme' version of this game is investing BTed money and then using programs like CreditProtector to avoid monthly payments and any new charges/fees, if you qualify.

Like jdopple above, I'm also utilizing >50% on two cards (near 90% on a Citi card and a Discover card) and haven't noticed any significant deterioration in credit score. Latest true FICO was 745. But my total utilization across all cards is only 18% (my calculation), and has been as high as 45% across all the cards. I think that after you've done this for many years, the 'logic' in the score calculation may recognize and reduce the importance it places on higher utilizations. That being said, I've never carried over 50% on my cards in aggregate.

When I see a great deal like the Discover O% for life I take the max. Some of my cards have offered great deals that I use for business purposes. Either O% of I will go as high as 1.9%-2.9% depending on a few factors. Citibank offers me a 1.9% rate every year and I use the money for some business things before I pay it down.

Rob

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Alternative one: Same, except pay $12,501 on the last day of that billing cycle. You get a month at the maxed out level, and 5 months at about half that. Moreover, your next five minimum payments are only half what they would be if you'd maxed the line out. So, worst case is you're leaving only about 40% on the table. But it's even better than that, because by paying 1/2 of the balance off, you'll likely get a letter from chase saying something like, "we noticed you made a large payment. Have another 0%, this time at 9 months." You WILL NOT get that from chase if you max out the line and make minimum payments.
Alternative two: Same, except pay the WHOLE THING off on the last day of the billing cycle. Then, write another check on the first day of the next billing cycle. Yes, you pay $50 a pop--but if you are able to get prime rate on the funds (e.g., via a HELOC), you'll pay $50 to save $125 with a $25K line--and $250 with a $50K line. And you'll show ZERO utilization on the credit reports, will likely get LOTS of new offers, and probably will get a line increase to boot, since you show a regular history of large usage AND payment without ever getting your credit dinged.
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I like this idea but how often have you gotten a letter like this?? I had 15K on chase most of last year - very nice flexible no fee advances - they made a mistake and rewarded me point for BTs - so I kept paying off and taking again. Worked great for points but I never got that kind of letter.

Now I've got 30K on chase(100CL) but they've smartened up on the rewards. And since I'm floating that money on SBs and CDs it would be a pain to come up with the 16K+ each month to go back and forth. Still no fees and fairly flexible but if I had 16K laying around I'd sink it into more SBs or CDS!

Figure out your minimum payments in advance. It should be easy if you do not have to use your cards for monthly purchases to keep 0% APR and do not transfer additional balances. Use MBNA BillPay then to schedule min payment + $1 as far in advance as possible. DO NOT FORGET TO PAY MBNA ON TIME!

No Dave, I meant 100%CL of 30K. And I'm struggling just to keep 150K or so of SBs and CDs going, no extra slack to try it with. Perhaps if I did things your style I'd have twice the lines and more slack, not sure.

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Exactly. And they are MUCH LESS willing to do so if you keep a huge balance out and pay minimums each month--that's a risky behavior, since (among other things)it mirrors what people in financial trouble are doing.
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Haven't noticed this pattern, I wonder if there's a bit of randomness masquerading as pattern in this.

Regarding using MBNA's Bill Pay, has anyone been able to get points for paying their BTs using this service? I know that the merchant must be "in network" to get points from MBNA but I have yet to find an in network merchant. It would just be icing on the cake but it would be nice if anyone has figured it out.

Dave - Actually will be dumping some EE bonds June 1st, rate is just getting too low for me, however I'm probably picking up a similar amount of I bonds at the currently nice rate. Also been picking up some of the 6% cds at golden1(another thread). Do really hate to pay taxes on my gains on the EEs though.

Wouldn't be at all suprised if you're right about style but it's sort of like when I considered going to business school years ago - I'm making 4-5K a year now this way, and a couple of years of making 2-3K in the hopes of making 4-5k or more again in a few years with a higher credit score, nah I'm not that much a fan of delayed gratification.

In my particular situation though I don't see the risk you do in a max out strategy. If I were floating a porsche on 0% or anything similarly unsellable - that would be different!

I will probably become a convert when I start seeing CC's pulling reviews or rate jacking. So far the only downside - as I discussed with you last year - is not having the timing right to get deals like the schwab -.75 HELOC you got last year, and if I do refinance having the potential for problems. Although I've been doing this for a number of years and refinanced 6-7 times and ended up settling for the -.5 HELOC deepgreen you posted.

Still think the key for folks is don't play this game from a position of weakness - if you don't have the resources to backup the CC loans, don't do it. Nuances of how we do it are far less important than that.

DaveHanson said: I have no non-anecdotal evidence on which offers go out (though again, the anecdotal evidence is considerable.) However, there is plenty of published material from the CRAs and CC companies confirming the claim that a maxed out line with only minimums paid monthly is considered a VERY risky profile--warranting reduced exposure where feasible (and that can mean fewer offers, rate jacking, reduced limits, and other nasty reactions.

manuel said: In my particular situation though I don't see the risk you do in a max out strategy. If I were floating a porsche on 0% or anything similarly unsellable - that would be different!
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I will probably become a convert when I start seeing CC's pulling reviews or rate jacking. So far the only downside - as I discussed with you last year - is not having the timing right to get deals like the schwab -.75 HELOC ...

Here is an example:
last year I was carrying about 30K on two MBNA cards with 98-99% utilization.
- My score was pretty low(PG-FAKO around 690), but I still managed to get approved for 4 more MBNA cards (HGW), but had to talk to the analysts and explain them that I have the $ to pay off the balance. And one of the analysts did specifically ask, why whas I only making minimum payments.
- Bank One decided to close my unused CC with 10K CL, "due to the high balances on other cards" (or something like that). I've convinced them to reopen it with 5K CL. (this was the only negative sideeffect).

Another obvious issue that I think has come to have about as big an impact on my credit as % of CL is length of CC. Reaching for the usually non-taxable bonuses and combining Mbna and chase(2 recent examples) and getting the most generous 0% terms on new lines has sharply reduced my average length of CC line.

At least as reported by privacyguard I'm down to 3 years 7 months - and the last round of paydowns I did didn't give me more than a 30-40 point fako rebound. In many ways I think proper management of this can be as important. My fako has been as low as 607 - right now about 680. MBNA seems to have their own system/approach and even when my CR looked it's worst they were very flexible.

I think to really clear out my CR would take more than a year - even if it was a year it would pretty much halve my income. From say 4500 to 2200 - and giving up 2k+ for one to two years for a future gain - nah. Do wish though that I'd done a better job years ago massaging CC lines.

Do wonder though if some of the 'favorable CRA and CC treatment' you mention is more complex than you think - I often get the sense I get more offers when I've got substantial debt outstanding..

TheManWhoExcaped said: peteypablo said: He gets several accounts with different banks or credit unions and buys gasoline $3.00 at a time or makes several $1.00 donations per month. That might work for say 5 accounts say each with 25K. But it probably won't work for say, 500K ,which Dave said he had/has. That will require the money split among 20 accounts.Actually, I only work with rewards checking accounts allowing >$25K at the bonus tier, and generally >=$50K. And I tend to make several $1 utility payments per account. Since I pay MANY utility bills (owning investment property), this is not difficult. It will take a good half hour to do this online. It's tedious but easy to mulitask with; I'll generally do it while returning phone calls or the like.