Since this weekend is the official kickoff of the 2012 Holiday Shopping Season, I thought it might be a good time to post again on credit card signup bonuses. Also, I would like to introduce the concept to my readers of a credit card app-o-rama.
An app-o-rama is the idea of applying for multiple credit cards all at once with the goal of getting big signup bonuses from multiple different cards. Also known as a credit card “churn”, many do this on a quarterly basis to maximize their return over the course of the year. When done with some care, you can reap huge rewards from signup bonuses, and actually improve your credit score. I will post more on credit scores in future posts, but basically your score is dinged temporarily from the credit applications, but then usually rebounds in the future as a big part of your score is how much available credit you have that you are not using. The ding from the credit application can also be mitigated as it is only short term (it stays on your report for two years, but only affects it for one year, and sometimes seems to decline in importance after several months) and you can spread out your applications to different banks who hopefully pull from each of the different three credit reporting bureaus, thus making it look like you had fewer applications to each of the bureaus.
The problem with doing this though is that almost all credit cards now require a somewhat substantial minimum spending requirement to reap the bonus at all, or to get the entire advertised bonus. Many travel blogs and such play down the amount of minimum spend required and even go to great lengths to show people how to “goose” your spending, but at the end of the day, you have to spend the money. It is standard to require $2000 in spending in three months to get many signup bonuses. Some cards with the best current bonuses, like the Chase INK Bold card require as much as $10,000 in spending in a few short months to get their full 50000 point signup bonus.
It is obviously a horrible idea, then, to signup for a credit card and not get their bonus. It is an equally horrible idea, though, to spend more than you otherwise would just to get the bonus. Worse yet, it is bad to overspend and not pay the bill off, thus running up finance charges which negate the value of the bonus. Many people must actually do this, as I am sure the banks and credit card issuers are smart enough to know what they are doing and how to structure their offers to maximize their returns.
So, what to do? Well, obviously then credit card apps should be tried to be tied to times when you know you will easily meet the spending requirements for purchases you would have made anyway. For many folks that is this time of year! Find a couple of good cards with minimum spending in an area you are comfortable with, and grab them all right now. Spend the money you would spend anyway, and get a big signup bonus that can be exchanged for cash back (50k points often equals $500 in cash back) or travel (5ok points is often equal to two domestic roundtrip airline tickets) Many people would advise you on getting cards int he Ultimate Rewards program from Chase or the Membership Rewards program from American Express as these points are flexible and can be moved to many different airline or hotel programs for maximum value.
Another benefit of doing this now is the magic of the billing cycle. Credit cards have a 30 day billing period where you run up charges and then usually don’t require the bill to come due for 30 days after that. So anything you charge now on a NEW CARD, wouldn’t have to be paid back until late January or early February. This is nice as it can allow you to smooth out your spending over two months. Make a first payment when the bill is generated in one month, and then pay the full balance off when it is due the month after that. It is essentially a way to take greater control and smooth out spending a time when people tend to spend more than normal.