There are a lot of credit card options out there, and each of them comes with its own laundry list of bonuses. Some offer big sign-up bonuses, and this could be very enticing to prospective cardholders.
However, while the perks can be exciting, there are also downsides to credit card sign up bonuses.
When looking at signing up for a credit card, you should be fully aware of what the sign-up bonuses entail and whether or not they are a good reason to take on a new credit card. Read on to learn about what to consider when choosing a credit card.
A Little More About Churning
To take advantage of multiple sign up bonuses, people have begun churning. This is when someone opens up new cards solely to gain the bonuses. There can be a lot of rewards to reap from this strategy, but there are also dangers in participating in this activity.
For example, credit card companies rely on their big sign-up bonuses to entice you to sign up for them. This can include miles, cash back, and other big prizes.
For you to earn these rewards, you will have to spend a certain amount, and if you are not careful, this could lead to some serious ramifications when it comes to your credit score.
Sign-Up Bonus Advantages
If you are considering signing up for cards with big sign-up bonuses, these are some of the advantages of doing so.
- Having multiple cards that have big sign-up bonuses will allow you to get more rewards. Depending on its bonus, each card will allow you to gain a great deal of cash back or miles, whatever the rewards are for using them.
- Using this technique will also help you get to those rewards faster. This is a great thing when you realize most standard cards will require you to get to $10,000 before achieving your entry offering.
- These cards that offer these big bonuses for signing up often assume that the individual will stop using them once the rewards have been gained. When done, you can easily cancel the card or simply stop using them.
- You can utilize the card or cards to maximize the benefits according to your buying habits.
Sign-Up Bonus Disadvantages
Like with everything, when it comes to signing up for one or multiple cards with high ticket bonuses for signing up, there are a few things to consider that could negatively affect you and your financial standing. Here are the disadvantages.
- Whether you apply for one card or multiple, it will affect your credit score. This may very well be the biggest disadvantage there is. Each time you apply for a card, you lose between 5 and 10 credit points.
- Having a card that you can just whip out may lead to more money being spent than you have budgeted for. This is especially true when you are churning, as you will have multiple cards active at one time.
- There may be a change in terms when it comes to how much those rewards and points are worth. Every now and then, the rules change, and this could impact the benefits of these big sign-up bonuses.
- When it comes to multiple cards, many banks or issuers have rules to keep people from opening or using multiple cards.
- Sometimes, annual fees will dip into your reward stash. That means if you have a card that you don’t use much but have rewards on, the annual fees will eventually reduce your stash.
Tips and Other Considerations
There are a couple of other things to keep in mind when choosing a credit card.
First, ask yourself why you are looking for a card. Are you looking solely for that big bonus, or are you trying to build your credit?
Second, don’t try to get too many cards at one time. Make sure to understand the fees and interest rates before use. Understand the rewards and their requirements.
Finally, look at your payment history and how it will affect your credit score.
Final Thoughts
As you see, there are plenty of advantages to choosing a card or cards with a big sign-up bonus, but there are also disadvantages.
Understanding both of these will help you in your decision-making process and allow you to be more fiscally smart in your decision.