I got my first credit card when I was in college and I used it for most of my entertainment(see alcohol) and dining out purchases. Although I was approved for a high limit, fortunately I never carried a balance. After four years, I realized I had accumulated a ton of points. I quickly spent these on a barbecue set, a bath robe, etc. At the time, I didn’t know where most of the points came from but it turns out that I had received 25,000 Citi thankyou points for signing up for the credit card. Just 5 years ago, it seems like every credit card company on earth was offering low intro APR or 50,000 bonus points for signing up and hitting a small spending threshold. Although these offers aren’t as common as they once were, they are still out there.
Since then I’ve applied and been accepted for over 10 credit cards with sign up bonuses and gotten thousands in gift cards, travel rewards and cash(wow that sounds like a scam! But it’s true). A lot of college students that don’t use credit in a smart way end up needing debt relief when they graduate, so it’s important to spend responsibly. Here’s how I do it:
What to Look For
I generally won’t consider any card unless it offers a sign up bonus of $400 cash back, 50,000 points or 75,000 airline miles. Those are my general guidelines and some offers will give you more, some less. Most cards will waive the annual fee for the first year but for those that don’t just subtract the annual fee from the bonus to see if it’s still worth it. The best thing about these benefits is they are tax free, for now. Since they are considered a sign-up bonus you will not have to pay taxes on the money you receive. In fact, I don’t know if they’ll ever be able to efficiently tax credit card points since they can be used at different redemption rates.
Where to Find the Deals
Most of us don’t have the time, nor the desire to be scouring the internet every day for great credit card deals. So instead, I use sites like slickdeals and fatwallet to do the searching for me. I’ll set deal alerts with the keywords that I’m looking for or just browse through the hot deals section once in a while. I’ve actually found most of my deals using the hot deals forum on slickdeals. These forums can be a great resource for anyone looking to start churning credit cards. Here’s a deal that you’ve probably already heard of:
Southwest Airlines Premier Rewards Card (Available as of 8/21/2012)
This particular card will give you 50,000 bonus points after you spend $1,000 in the first 3 months. These bonus points can be redeemed for up to $800 in Wanna Get Away travel with Southwest. Although there is a $99 annual fee that is not waived, you will get 6,000 bonus points on your one year anniversary(worth $100 in airfare) that effectively covers the fee.
Although the annual fee is a bummer, I still think this is a great deal. They’ve had these offers in various forms for a couple years now and I’ve already applied and been accepted for the plus card, premier card and plus business card and gotten $2,400 in southwest travel funds.
Applying for the Cards
Now the trickiest part about churning credit cards is the application process. Many of the cards that offer these high sign up bonuses require great credit, 720+. As long as your credit score is above this, you should be fine. I use Credit Sesame and Credit Karma to monitor my score and since the average age of my accounts is high, the main adverse effect of opening a new card is the credit inquiry. When you increase your number of open accounts, this is actually a positive contributor to your score. Here are some tips to follow before you apply:
- Don’t sign up for more than one card with the same company(ie Amex) within 2-3 months.
- Make sure your utilization is low at the time you apply for credit and you haven’t had too many recent inquiries.
- If you want to apply for multiple cards with two different companies do it on the same day. Even though you’ll receive a hard inquiry from both companies, it takes a few weeks for them to report it to the credit bureaus.
Keeping the Cards
There are lots of creative ways to meet the spending requirements, but I generally won’t use a card after I’ve received the bonus. If the card has no annual fee, keep it around to increase the average age and number of accounts but be sure to make at least one small charge every 6 months. Cards can be automatically closed if there is no activity over a long period of time. If there is an annual fee, call in near the anniversary and see if they’ll waive the fee for you. Make sure you never cancel the card within a few months of opening it, this is usually a red flag on future applications. I have a lot of cards so I keep a simple spreadsheet and set calendar reminders of when I need to cancel cards.
You can redeem the bonus points for airfare, cash or gift cards. Most of the reward networks offer periodic sales on gift cards, so I’ll usually wait until there’s a sale and then I buy in bulk. Alternatively, you can sell the gift cards and get cash. Although a good redemption rate is 100 points to $1, I’ve gotten as high as 100 points to $2 when redeeming for airfare.
So that’s it. Follow these steps and you’ll be on your way to receiving great credit card signup bonuses. If you already have a card or two that you are able to manage responsibly, taking on a couple more should be no problem. Obviously, you should not go down this road if you’re unable to resist the temptation of using all that open credit. I think of my credit cards more like debit cards or charge cards, which have to be paid off in full every month.
This isn’t a scam and you shouldn’t feel guilty about opening a card, receiving a bonus and closing the card. Credit card companies are businesses, and they’re free to set whatever terms they like. It’s up to you to take advantage of them. Of course if this seems distasteful to you, you don’t have to participate. However, if you can manage your credit responsibly, credit card sign up bonuses can provide you with a couple thousand dollars in tax free income every year.
Readers, have you been tempted to go for any of these sign up bonuses? Or does it sound like too much work?
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-Harry @ PF Pro