6 Myths About Using Credit Cards for the Sign-Up Bonuses

By Craig Ford. Last updated 4 June 2014. 6 comments
Photo: The.Comedian

Not surprisingly, people have very different opinions about signing up for a credit card just to get the bonus dollars or points, and then canceling the card before being assessed the annual fee.

The common points for and against are:

  • It’s a waste of time and damages your credit score: On the one hand, some folks tend to think that the time you spend signing up for and canceling credit cards is hardly worth the effort. They think it’s a poor man’s game that ultimately leads to more losses than gains. Better, so they say, to focus on other more enjoyable and profitable uses of your time. (See also: How to Improve Your Credit Score)
     
  • It’s the best way to earn extra cash and perks: On the other hand, some people sign up for credit card bonuses like it was a second job. They track offers and only sign up for the best credit card sign-up bonuses. This hobby allows them to do things they otherwise could never afford.

So who’s correct? If you play the game right (and yes, it’s a game), I think you can come away with some very sweet bonuses and rewards by taking advantage of credit card sign-up promotions. In fact, I think that most people opposed to sign-up bonuses are opposed based on six myths.

Myth 1: It’s going to trash my credit score.

Signing up for multiple credit cards certainly won’t help your credit score. But for most people, the credit impact is minimal. In a two month period, I once signed up for two credit cards and canceled another one. The total drop in my FICO score over that two-month period was six points. That’s little more than a hiccup and certainly couldn’t be categorized as trashing my credit score.

Myth 2: You must protect your credit score at all costs.

When lenders set your interest rates, they do so on a scale basis.

For example, myFICO reports that a 760–850 score will allow you to get a 4.662% APR on 30-year fixed mortgages. If your score is between 700–759, then your rate is 4.885%.

Thus, for example, if John Doe has a credit score of 800, he doesn’t need to worry about the dozen or so points he might lose by signing up for credit cards to take advantage of several bonus offers. John Doe can still get the best interest rate possible.

In school you might have received a 98% and your classmate may have earned a 92%, but when the letter grade came, you both got the same grade of A.

Myth 3: It’s so time consuming.

Here are the things you need to do when you sign up for a credit card to get the bonus:

  1. Fill in the application: 10 minutes (2 minutes if you use an auto fill).
  2. Activate the card: 2–7 minutes, depending on whether you can activate it online or over the phone.
  3. Set up an online account with automatic payments: 10–15 minutes.
  4. Cancel the card: 5–15 minutes, depending on how pushy the phone reps are.

All-in-all, it might take up to 45 minutes for the entire cycle to get your credit card sign-up bonus.

ARTICLE CONTINUES BELOW
What type of credit card are you interested in?
How much do you spend per month?
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Myth 4: You can’t get anything valuable in return.

This may or may not be true. It just depends on what bonuses you decide to take advantage of.

Company X might offer you a shiny silver toaster for getting a credit card. That, in my opinion, would not be worth the impact on your credit score, nor would it be worth the time.

Company Y might offer you 100,000 bonus miles (just like the current 100,000 miles British Airways credit card bonus). That represents at least $1,000 worth of flights, but more likely a $2,316.91 value. In my opinion, that is worth the minimal impact on the credit score and the minimal time investment.

Myth 5: It will be really bad if you get denied.

If you get denied for a credit card, it really isn’t a big deal. It’s not a reflection on your character or your personality. There could be any number of reasons why you were denied. In fact, if you get denied, I recommend that you call the company and ask if there is anything you could do to get approved. Ask them, “What if I took a smaller credit limit?” or “What if I canceled one of my other cards with you?”

In the end, if you get denied, all it cost you is a credit pull. As long as you’re not signing up for a credit card every week, then the denial just means you might need to wait it out a little bit.

Myth 6: You can’t use the rewards anyway.

This may be true.

Unfortunately, a lot of people focus on getting points. That, however, is only half of the game. You need to learn how to earn points and how to use points. Take frequent flyer miles as an example. You need to know how to get the best bookings on points, not just how to earn points. If most people reached out to someone who knew about travel rewards, they would find that there are ways to maximize your points and get frequent flyer mileage bookings.

Next time I find a big credit card bonus, I’m going to sign up. What about you? Why or why not?

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Guest's picture
David M

Of course I will continue signing up for credit cards! I make a lot of tax free money this way!

I have gotten the United Chase card 5 times, Marriot Chase 3 times, Citibank American Airlines 2 times and various Citibank "Thank You Network" cards - everytime getting substantial bonues (ussually about 30,000 points) and NEVER paying a card fee. All these cards waived the fee for the first year and after the year I cancelled and then a few months later - signed up again and got a bonus all over again.

I have flown to Asia twice in First Class and once in Busuness Class and most of those miles were from Chase - much from the sign up boneses. I also got many miles when the government allowed you to charge the purchase of US Savings bonds - transfer cash to cash and get FFM - what could be better than that. Well getting interest when I purchased at the end of the month and not paying the credit card for 60 days or so!

Guest's picture
Guest

David M, I'm wondering how much this has effected your credit score? I have opened credit cards for the perks too, but usaully keep them open until they close themselves out or don't close them out at all. I see this effecting two big things on your credit score if you close accounts out regularly - Average age of an account and balance to credit limit ratio.

Guest's picture
Ginger

I used credit card rewards to get enough points to get five nights at hotels when my fiance and I go back to California for our wedding and before and after our cruise in Hawaii.

Guest's picture

You can absolutely make some money from playing the sign-up bonus game with credit cards but only in certain environments. Right now credit cards are again competing against eachother for new accounts so there is an abundance of cash reward offers on the table. If you're going to play the game stick to $100 plus cash bonuses to make it worth the hassle and (slight) ding you'll incur on your credit score...

Guest's picture

I'm a big advocate of signing up for credit cards for the right bonus/rewards. I recently signed up for a Marriot card that will give me a few nights of free lodging that I plan to use for a summer beach trip. Last summer I signed up for a citi card that gave $200-$250 cash back after spending a certain amount in 3 months.

Any offers like these I consider worth signing up for, especially the British Airways one you mentioned. As long as you are responsible and are screening only the best offers, there's a lot to gain from credit cards offers without significantly affecting your credit score.

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Ben

When banks compete, thats when you win. I just signed up with a Delta/AMEX card and will get 2 free airline tickets in 3 months. My wife also signed up so she will also get 2 free airline tickets. We haven't paid to travel for over 2 years now and that is because we get the airline award cards. With the Delta/AMEX (American Express) card you have to spend $1,500 in 3 months to get 40k miles, just shy of 2 airline tickets, but spending a few thousand in 'bills' on the card and you are at the magic number of 50k miles.

Why do people create 'myths' about credit card rewards programs? I always sign up and YES when the next one comes around, I'll be there to.