Is it Worth Opening a Credit Card Just For the Bonus?
Over the past several years, my interest in credit card rewards has grown tremendously. As this has happened, I’ve also backtracked on a couple of positions I held earlier on. A key example of this evolution is how I went from thinking I’d never want a credit card that charged an annual fee to applying for the $550 American Express Platinum Card. Now I’m on the verge of breaking another one of my own credit card rules as I’m considering applying for a card I don’t even really want!
Let me explain. Currently, the Chase Sapphire Preferred is offering new cardholders the chance to earn an extremely impressive 100,000 points. The only problem is that the card’s rewards categories (2x on travel and 2x on dining) don’t really fill any need I have in my credit card strategy. In turn, it’s likely that I’d just use the card until I earned the bonus and then “sock drawer” it.
Given the temptation I’m experiencing, I thought it was worth highlighting a few things to consider should you find yourself in a similar situation — while specifically looking at how each of these factors apply to the Chase Sapphire Preferred offer.
4 Things to Consider Before Pursuing a Credit Card Bonus
The actual value you’ll get from the bonus
When comparing credit card bonuses and rewards, it’s critical that you calculate what the points you’re earning are actually worth. While some cards make it easy by valuing each point at a flat 1¢, others complicate things by offering multiple redemption options. In some cases, these options may mean higher or lower values for your points. For example, in the world of American Express, Membership Reward points may be worth 1¢ when used on Amex Travel or could be even a better value when transferred to partner brands, but are only worth 0.6¢ if redeemed for a statement credit. Therefore, you’ll not only want to know what the bonus points you’d be receiving are worth under normal circumstance but also determine how you’d likely redeem them.
In the case of the Chase Sapphire Preferred offer, the minimum value for the 100,000 points would be $1,000. That’s because customers can redeem normal statement credits at this rate. However, if used to book travel via the Chase Ultimate Rewards portal or used for select statement credit categories as part of the Chase Pay Yourself Back program, the value per point rises to 1.25¢ — for a total bonus of $1,250. Finally, like with Amex, Chase also maintains a stable of transfer partners, opening the door to even more attractive redemption value. Personally, I see myself scoring at least $1,250 from the bonus, which is definitely a significant sum.
The minimum spend requirement
So you have the opportunity to get hundreds (if not thousands) of dollars in value just for opening a card… what’s the catch? Well, the catch is that you’ll likely need to spend a certain amount of money on a card before you’ll be awarded this bonus. What’s more, you’ll typically only have a few months in which to reach this threshold. More often than not, initial spending needs to be done within 90 days of account opening. As for the amount you’ll need to spend in that timeframe, that will depend on the offer.
Back to Sapphire Preferred example, the current offer requires that customers spend $4,000 in purchases on the card within the first three months. Personally, while this is fairly doable, it is approaching the upper end of my spending — and that’s if I put all of my expenses on the card for those three months. That said, I am due for a new computer, so that could go a long way toward getting me to that limit.
If you aren’t sure you’ll be able to reasonably reach the required spending amount to earn a credit card welcome bonus then it’s probably not worth pursuing one. By “reasonably,” I also mean spending naturally without resorting to buying things you wouldn’t otherwise purchase in a bid just to hit your spend requirement. What’s more, if there’s a chance you’ll need to carry your balance over month to month instead of paying it off while meeting your minimum spend, that is also not likely a good idea.
That said, if you really do want to chase a bonus, there may be ways you can achieve your minimum while only spending on essentials. For example, using services such as Plastiq, you might be able to put expenses such as your rent on your new credit card. Unfortunately, there is usually a fee associated with this — which would typically makes those tools a money-losing proposition under normal circumstances. But, depending on how big the bonus you’re expecting is, these may be an option as a last-ditch effort to meet your minimum in time.
The annual fee (and downgrade options)
Another big factor that could come into play when determining if a credit card bonus is worth pursuing even if you don’t care for the card itself is what the annual fee is. To be sure, there are plenty of cards that charge an annual fee but still present positive value thanks to the perks and benefits you enjoy as a cardholder. On the other hand, if you can’t make use of the card’s main benefits, then an annual fee could mean you end up paying later for the bonus you “earned” today. Plus, if the fee isn’t waived for the first year, this amount could cut into the value you receive from said bonus.
Luckily, while the Chase Sapphire Preferred does have an annual fee, it’s a modest one at $95. Nevertheless, paying that $95 year after year would probably be a waste for me. Yet, spending $95 now to gain $1,000+ still seems like a pretty good value. So what do I do?
This where so-called downgrade paths come into play. In some cases, card issuers will allow you to keep your account open but change the type of card you have. Furthermore, depending on the company, these downgrade options may include no annual fee cards. Sure enough, that’s the case with Chase, as Sapphire customers can change to a no-annual-fee Freedom Flex or Freedom Unlimited card. Meanwhile, this isn’t quite the case for other cards such as the American Express Platinum card as the lowest tier option under that pick is the Green card, which still carries a $150 annual fee.
A word of warning here: if you do plan on downgrading a card after earning a bonus, you’ll likely want to wait at least until your first year is up. That’s because card companies don’t tend to like it when people claim their bonuses and then quickly jump ship — they call this “gaming the system.” Thus, to stand on their good side, you’ll want to use some caution.
Also, while it’s also possible to simply close your account after the first year, this could have an impact on your credit scores. Although it might not be the end of the world, it’s often better to keep the account open if you can. With that, before turning in an application, it’s probably a good idea to look into what your long-term options may be.
The possible future implications
Finally, another consideration that needs to be made when looking to take advantage of credit card bonuses is how this might impact your future card prospects. For example, American Express has a “once in a lifetime” rule for its cards, meaning that you can typically only receive a bonus on a card once. In other words, if you open a Platinum card to get a bonus, later downgrade or cancel your card, and then try to apply for another Platinum card down the line, you’d no longer be eligible to earn a bonus.
Meanwhile, another key credit card restriction that could play an even larger role in your bonus hunting strategy comes from Chase. Despite rarely being acknowledged by the bank, their “5/24” rule is an open secret. Under this restriction, those who have opened five or more credit cards from any issuer over the past 24 months are likely to be declined for Chase cards.
Because of such limitations, it’s worth being a bit picky when it comes to apply for credit card bonuses.
Personally, even after considering all four of these factors, I’m still not 100% sure if I’ll end up adding the Chase Sapphire Preferred card to my wallet while this 100,000 point bonus is still available. Despite the math working out in my favor, there’s still the matter of actually needing to manage another credit card account — not to mention downgrading once my first year is up. On that note, if I were to apply, my plan would be to swap to the Freedom Flex down the road, adding another 5% rotating category card to my mix. In any case, if you’re in a similar boat and are considering opening a credit card just to claim an attractive bonus, hopefully these tips help you make the right move.