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HomeFinanceIs it worth opening a credit card just for a sign-up bonus?

Is it worth opening a credit card just for a sign-up bonus?


Right now, the Chase Sapphire Preferred® is offering new cardholders an 80,000-point sign-up bonus worth $800 cash or $1,000 in travel.

$1,000. Just for getting a new credit card — and a darn good one, at that.

Talk about tempting.

Source: Giphy.com

 

But what’s the catch? Will it ding my credit score? And if so, when is it still worth it?

Let’s investigate when it might be worth opening a new credit card just for that juicy sign-up bonus.

Which credit cards have the best sign-up bonuses?

Here’s a quick overview of some of the best sign-up bonuses as of May 2022, as well as some historical data on what these cards have offered in the past.

For the latest numbers, check out the best credit card sign-up bonus intro offers.

Card Annual fee Signup bonus (May 2022) Historical sign-up bonus
Chase Sapphire Preferred® $95 80,000 Chase Ultimate Rewards® points worth $800 cash, $1,000 in travel Varies from 60k to 100k
Chase Sapphire Reserve® $550 50,000 Chase Ultimate Rewards® points worth $500 cash, $750 in travel Varies from 60k to 100k
The Platinum Card® from American Express $695 125,000 Membership Rewards® Points worth $750 cash, $1,250 in travel Varies from 100k to 150k
American Express® Gold Card $250 75,000 Membership Rewards Points worth $450 cash, $750 in travel Varies from 75k to 90k
Capital One Venture X $395 75,000 Miles Varies from 75k to 100k
Chase Ink Business Preferred® $95 100,000 Chase Ultimate Rewards® points worth $1,000 cash, $1,250 in travel Typically 100k
Chase Freedom Unlimited® $0 $200 statement credit Varies from $150 to $300
Chase Freedom FlexSM $0 $200 statement credit Varies from $150 to $300

What’s the catch with big sign-up bonuses?

There’s no real “catch” with sign-up bonuses — your bank won’t try to worm their way out of paying you like a shady insurance company. Just follow the terms and you’ll get your bonus.

But there are caveats, however — and I think that’s a subtle difference.

You’ve gotta spend to earn the bonus

To start, all credit card sign-up bonuses have a spending threshold you have to meet before the bonus triggers.

Source: Giphy.com

For example, the Chase Sapphire Preferred® card requires you to spend $4,000 within three months of account opening to trigger the 80k/$800 bonus.

The average is about $4k in three months, but generally speaking, the bigger the bonus, the higher the spending threshold required to trigger it. For example, the Amex Platinum requires you to spend $6,000 to trigger its 125k-point bonus (but at least you get six months to do it).

Cards with the best welcome bonuses ($500+) typically require excellent credit and charge unforgiving, high interest

With the exception of the two no-fee Chase cards, every card listed in the chart above requires a credit score of 720+ to successfully apply.

Furthermore, these are certainly not balance transfer or credit-building cards. Any card offering a high sign-up bonus will have high interest rates (up to 29.99%), no 0% APR period, and a punishing penalty APR if you’re 60 days late on a payment.

They typically have annual fees, too

As illustrated in the chart above, pretty much any card offering a sign-up bonus above $300 charges an annual fee ranging from $95 to $695.

Now, I’m a firm believer that paying for a credit card can actually make lots of sense and save you tons of money in the long run.

But it’s definitely still worth considering that your sign-up bonus is really your bonus amount minus your first annual fee.

Applying for a credit card will always impact your credit score

Applying for a credit card is akin to applying for a loan. Therefore, applying for any credit card will involve a hard pull of your credit, which lowers your credit score by three to eight points.

Credit card applications ding your credit score even if you get rejected, which is why you want to make 100% sure you’re eligible before applying, rather than learning the hard way.

And taking a ding to your credit score may not always be worth the sign-up bonus.

For example, let’s say you apply for the Capital One Venture X so you can use the 75k miles for your next trip. You’re accepted, but the hard pull lowers your credit score from 701 to 697.

That may not seem like much, but even a small dip can affect your interest rates — and overall eligibility — for big loans you might apply for in the next few months, like a mortgage, auto loan, or student loan refinancing.

In short, the sign-up bonus may not be worth the hit to your credit if you’ll be applying for bigger, more important loans in the next few months.

Applying for too many cards too soon can severely impact your credit score

Applying for too many credit cards within a period of six or so months can cause a much larger drop in your credit score than just a few points per card.

Source: Giphy.com

That’s because the credit bureaus will see you scrambling to open several lines of credit all at once, which is a huge red flag for them. Why does this person need so much credit all of a sudden?

The banks themselves may cut you off, too. Chase has a not-so-secret 5/24 rule, which states they automatically reject applicants who have applied for five credit cards from any bank within the last 24 months.

You definitely don’t want the banks and credit bureaus thinking you’re that irresponsible, so if you do apply for cards just for the sign-up bonuses, keep it simple: one, maybe two cards max.

All things considered, when is it worth getting a credit card just for the sign-up bonus?

If the small ding to your credit is worth the cash

Sometimes, $800 is worth taking a five-point ding to your credit. As long as you’re not applying for another big loan soon, you can repair the ding pretty quickly by making on-time payments.

If you’re already in the market for an additional card

Experian, one of the major credit bureaus, says having three to five credit cards is generally safe as long as you’re making payments.

So, if you’re in the market for another credit card — especially a travel rewards card — you might as well seek out one with a generous welcome bonus.

If you’ll actually use the card past the bonus

Lastly, it’s not a great idea to apply for a card with the intent to cancel it once you cash out your bonus. That’s because canceling cards can negatively impact your credit, too.

So it’s best to get the card you think you’ll actually use for a year or two, even if it’s just for travel or emergencies.

When is it not worth getting a credit card just for the sign-up bonus?

If you’re ineligible in the first place

Put simply, if your credit score doesn’t justify a top-tier rewards card, you’ll want to bump your numbers. Not only will that qualify you for some sweet sign-up bonuses, but it’ll lower your interest rate on your bigger, more expensive loans (auto, home, etc.).

If you’re applying for a big loan soon (auto, mortgage, etc.)

Speaking of mortgages, it’s inadvisable to ding your credit right before applying for an auto loan or, especially, a mortgage.

That’s because lowering your credit score with a credit card application can negatively impact your interest rates on those bigger loan applications, costing you thousands more in the long run.

If you’re already struggling to make payments

Finally, if you’re struggling to make payments on your existing debt, you might be tempted to use another card’s sign-up bonus to help cover it.

But keep in mind that (a) you’ll have to spend $4,000 or thereabouts just to trigger the bonus, and (b) the new card may drive you further into debt.

Better than a sign-up bonus is a 0% APR balance transfer. This lets you move your balance from a card with high interest to a card with no interest for 12, 15, or even 18 months.

Luckily, both the Chase Freedom Unlimited® and the Chase Freedom Flex℠ cards offer 0% APR on balance transfer and a $200 welcome bonus.

The bottom line

With sign-up bonuses hovering around $1,000 or more, it actually is worth getting a new credit card just for the sweet cash bonus.

Just be sure you have your ducks in a row, first. Ideally you’ll get a card that you can actually use, with a spending threshold you’ll actually meet through regular spending, and you won’t be jeopardizing your credit score just before or during another big loan application.

Featured image: Khosro/Shutterstock.com

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