Credit Card Due Diligence
In this section we help you navigate the potential minefield of Profiting From Credit Cards. We list some of the biggest hurdles you may encounter, and how to easily hop over them to achieve large profits with borrowed funds.
What are some of the risks?
1) A poorly thought out PFCC.
It wont help you much, but shouldn’t hurt you beyond the credit inquiry hits. However, there have been instances of people experiencing adverse effects on their credit when lenders got spooked. Of course, if you spend all that newfound credit, it could spell financial disaster for you. And don’t even think of trying to apply for a bunch of credit just to default or leave the country.
2) Read the fine print!
Some cards have requirements such as only transferring balances to pay off other credit cards, counting convenience checks as a higher interest “cash advance”, and some require you to make a few purchases within the first couple of months or else your 0% balance transfer goes up to the full rate. There are also special provisions that will cause the minimum payment due every month to go up to 4% of the balance if you have too much of your balance as a 0% balance transfer, so make sure you budget accordingly. Most cards will limit the amount you may borrow via balance transfer from 50-90% of your total limit. Trying to borrow more than the balance transfer limit may result in default interest rates(around 30%) as well as other fees($35 and up) and lowering your credit score.
3) Keep cash on hand to pay the credit card bills!
If you plan on doing a flip that will take a few months and need $30,000 to buy a rehab project for cash, another $10,000 in rehab money to fix it up, $3,000 for closing costs(buying and selling), $500 for insurance, and $500 for taxes, how much do you really need? $44,000? WRONG! You’ll need at least $50,000 to cover the costs of the flip PLUS the monthly credit card bills. Just because the money you are borrowing is interest free doesn’t mean the credit card companies don’t still have monthly minimum payments due.
4) Never pay late or miss a payment!
If you do, the money you are borrowing at 0% interest rate will default to the highest rate possible(usually around 30%), you will be hit with other late fees($35 and up) as well as lowering your credit score and making it harder to use the PFCC strategy again in the future.
5) Lenders lowering limits or cancelling accounts.
After receiving your new lines of credit, your current creditors may lower or cancel your available lines of credit due to a potentially dangerous amount of credit being available to you to use(or their fear; abuse). While this is rare, it can usually be cleared up by a phone call to the lender and an email or fax verifying your strong cash/asset position to be able to pay back the borrowed funds.
6) Low credit limits.
Some lenders will only approve you for a small amount($5,000 or less) on new credit cards. If this is the case due to either having less than great credit, or it simply being a matter the lender’s policy limiting the amount of new credit cards, it can usually be remedied quickly. While most lenders will raise your limits over time when you demonstrate your ability to pay on time and be financially responsible, you want your limit bumped up fast to take advantage of the balance transfer. Simply call their customer service line, and ask them to increase your limit. If they ask why, just let them know you plan on making a big purchase in the near future.
7) High credit card balances = low credit score.
If your niche of real estate investing requires you to have good credit to refinance a property after you’ve purchased it, you won‘t be able to if you have any credit cards maxed out. When you apply for your credit cards, make sure you have enough balance transfer money from the cards to buy your target property/properties with all cash while at the same time being able to make the monthly credit card payments AND keep your credit card balances under 30% of your available limit on EACH card. If your balances owed on each card are under 30% of your credit limit, it will not affect your credit as negatively as if you had a high balance on even just one credit card. If you keep all your credit cards under a 30% balance and you had good-excellent credit before you used the PFCC strategy, you will most likely still be able to qualify for a conventional loan to refinance the property and pay back the borrowed money.
8) Balance transfer only available to pay off other credit cards.
Some credit cards are restricting the use of balance transfers to only being able to pay off other credit card balances. To still be able to use these restricted cards for our PFCC strategy, you must have at least two credit cards, one of which will allow you to use balance transfers to either your own bank account or allow you to use convenience checks as balance transfers. Simply use the balance transfer feature on the non-restricted card that will let you do a transfer to yourself, and then use the restricted card to do a balance transfer to pay off the non-restricted card. After the balance has been paid off on the non-restricted card, you can usually do another balance the same month(some companies will only let you do 1 balance transfer per month, so you may have to wait until the next month to do the balance transfer).
9) Waiting too long to do the balance transfer.
Don’t do it! Most credit cards have a 3 month window to execute your 0% interest rate, no fee balance transfer. After the 3 month window closes, you will be charged normal balance transfer rates and fees to do it. Make sure you read the fine print to find out exactly how long you have to do the balance transfer.
10) What do I do if I already have a lot of credit cards?
As long as you have good credit, that shouldn’t slow you down on your PFCC. Each card you get that has a 0% APR balance transfer rate that you already have a previous credit card with that lender can have the available credit limit shifted from the old card to the new one. Simply call the lender’s customer service number, and request to have the limit from the old card shifted to the new one so that you can take advantage of the 0% balance transfer. We have heard of people that have existing cards with $25,000+ limits open a new account with the same lender, receive a $10,000 limit card that offers 0% APR balance transfers, and then call the lender and have $24,000 of their old credit card’s available credit shifted to the new card so the new card ended up having a $34,000 limit new card to use for balance transfers.
