If you have strong credit, leveraging your credit cards as part of your wealth-building strategy might be possible. Whether you’re looking to use them toward shrewd investments or through tactically accumulating rewards, your credit card can be a powerful tool.
However, before you worry about how to leverage credit to make money, it’s crucial that you understand the high risk involved in leveraging your credit line as investment capital. If you don’t have cash flow ready to immediately repay large credit card purchases, you’re putting yourself in danger of getting buried in debt.
Strategies for Leveraging Credit Cards
Depending on your risk tolerance, how much cash you have on hand for repayment, and your financial goals, you have a few options for how to leverage credit cards. Here’s a look at some of the ways you could leverage your credit to help pave your path toward building financial freedom.
Upgrading Your Property
If you’re looking for new investment options, you could leverage credit cards toward your existing home. Using your card as a cash flow tool to fund renovations and upgrades can help you increase your property’s value.
According to Remodeling Magazine, homeowners who update their kitchen can typically expect a return on investment (ROI) of up to 71%. The approximate ROI on a bathroom remodel is almost 60% or higher. Your ROI will depend on many factors, such as the quality of materials and appliances used, but in general, updating your home can improve its value.
Utilizing 0% Credit Promotions
If you’re wondering how to use good credit to make money, another option is a 0% promotional offer. A 0% APR credit card promotion lets you leverage your credit line at no additional cost for a limited period of time. The temporary promotion is typically reserved for those with excellent credit and is available for a short time frame, such as from six months to 18 months.
You can use your card toward other wealth-building strategies and repay your purchases within the promotional period to avoid interest charges. The main caveat is ensuring that you can realistically afford to repay yourcredit cardcharges within the promotional period. If you don’t, some cards charge deferred interest on any remaining balance after the promotion expires.
Recommended: What Is a Charge Card?
Turning Your Credit Card Debt Into Good Debt
Credit cards can be used as a tool to build your credit profile. A higher credit score can earn you access to lower, more competitive interest rates and a higher borrowing limit when you need a loan in the future.
Practicing sound borrowing habits on a credit card, like maintaining an on-time payment history, keeping your credit utilization ratio low, and not opening too many new accounts in a short period are some factors that can positively impact your score. Keep in mind that the better your credit, the better the terms you may receive to then use toward investments.
Recommended: When Are Credit Card Payments Due?
Flipping Items for More Cash
Flipping, or retail arbitrage as it’s sometimes called, is one way people leverage credit cards to increase their wealth. As an example, say you purchased a vintage Windsor chair from a thrift store for $20 using your credit card. If you successfully sell it on Etsy or eBay for $250 before interest accrues on the purchase, you’ve effectively leveraged your credit to earn a $230 profit.
Before you leverage your credit card in this way, do your due diligence by researching high-value items that can be flipped in a short period of time. Having inventory that’s taking up space in the corner because it’s not a hot item, or too niche, might result in getting hit with interest charges before a profit is made.
Recommended: How to Avoid Interest on a Credit Card
Making Use of Available Discounts
Another way to leverage credit cards is by using a credit card to save money on planned purchases. Many rewards and travel credit cards offer discounted rates on vacation packages or trip costs like flights and accommodations.
Taking advantage of discounts that already come with your card is another way to save money. You can then reallocate this discretionary cash flow toward more lucrative investments.
Maximizing Big Welcome Bonuses
Some credit cards offer lucrative sign-up bonuses for consumers who open a new account. For example, a credit card might offer 60,000 bonus points (that’s valued at $750) to new cardholders who make a minimum of $4,000 in purchases within the first three months of opening the account.
Keep in mind that this option is likely best for cardholders who have a large purchase coming up, or already use a card for everyday expenses that will allow them to hit the minimum purchase requirement.
If you meet the requirements of the sign-up bonus offer, you can use your earned rewards toward a statement credit, travel, and more, effectively freeing up cash flow that otherwise would have come out of your pocket.
Racking Up Cash Rewards
You can also strategically leverage credit card rewards. If your card offers cash-back rewards, use that card to cover your day-to-day expenses rather than your debit card. That way, you can earn money back on each dollar you spend.
For example, you can use a cash-back rewards card for groceries, school supplies, gas, dining, entertainment, vacations, and more. Depending on your rewards program, you could accumulate a sizable amount of cash back that could end up covering a portion of your monthly statement balance or even a trip. Or, you could get your rewards as cash that you then put into the market, allowing you to effectively invest with credit card rewards.
Recommended: Does Applying for a Credit Card Hurt Your Credit Score?
Investing in Yourself
Using your credit card to enhance your skills or education can actually be a powerful way to leverage your credit. For example, learning additional coding language might make you a more competitive candidate for a higher paying job.
In this situation, using your credit card toward online courses could potentially boost your long-term wealth and career opportunities.
The Takeaway
Responsible credit card habits are key to leveraging credit cards to build your wealth. If you can confidently repay your credit card charges every month, your card could earn you rewards while leveraging your credit toward investment opportunities.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
What does it mean to leverage your credit card?
Leveraging your credit card to increase your wealth means using your card as a cash flow tool. It’s best when used by cardholders who practice responsible borrowing habits, such as paying off monthly balances in full to avoid finance charges.
How do you make money leveraging credit cards?
Different ways to leverage credit cards include using your card toward a home remodel that increases your home value, or capitalizing on credit card rewards on purchases you already make.
Is leveraging credit a good idea?
Leveraging your credit can be a good strategy if you maintain positive financial habits, like making on-time payments and paying off your full credit card balance each month. If you don’t have the cash to pay back your purchases, this strategy can quickly backfire through accumulated debt and interest charges.
What is credit card arbitrage?
Credit card arbitrage is a strategy that involves borrowing credit from your card, and then using those funds toward a higher-interest investment vehicle. This is commonly seen using promotional 0% APR credit cards. After you’ve earned dividends from your investment during the temporary no-interest period, you’d repay your credit card balance and keep the investment profit.
How do I turn my credit into cash?
One option to turn your credit into cash is to purchase gift cards using your credit card for the balance you need. Just make sure you can realistically repay your credit card statement at the end of the month.
Photo credit: iStock/Delmaine Donson
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
SOCC-Q324-018