Be Careful Chasing Credit Card Signup Bonuses

A good credit score can help you qualify for the best credit card deals – ones with low interest rate, lucrative rewards, and signup bonuses. More credit card issuers are offering generous signup bonuses for new customers. For example, a points rewards credit card may offer a certain amount of points, 10,000 or more, if you spend a certain amount of money within the first few months of the card. Or, cash rewards card might reward you with $250 for making a specific dollar of purchases within a certain amount of time.

Earning the bonus might be easy, especially if you can meet the spending requirements. After earning one or two bonuses, you might be tempted to keep signing up for credit cards to earn more points, miles, or cash. But, chasing offers could be expensive and harmful to your credit if it's done wrong.

Each time you apply for credit, an inquiry is made to your credit report. Inquiries are a small part of your credit score – 10% – but too many inquiries in a short period of time can cost dozens of credit score points. Only inquiries made within the past 12 months affect your credit score, so spacing your card applications will affect your credit score less than if you applied for credit cards back to back.

Another reason to space out your applications is to keep creditors from getting suspicious about you opening a bunch of new accounts at once. Too many applications in a short period of time creates the impression that you’re taking on more credit than you can handle. As a result, creditors may begin to deny your applications. Being denied doesn’t hurt your credit. However, it’s a hint that you should slow down those applications for awhile.

Watch your credit utilization when you’re trying to reach the spending limit necessary to earn the bonus. Much of your credit score is based on the ratio between your credit card balance and your credit limit. If you’re running up a big balance trying to reach the minimum spending limit for the bonus, your credit score could be affected.

Break up the total spending amount over several months and pay the balance off each month. For example, if you have to charge $1,000 in 3 months to receive a bonus, charge about $334 each month and pay the balance in full. This is important if the spending limit is at or near your credit limit.

Opening new accounts can lower your average credit age – 15% of your credit score. But, it may not necessarily hurt your credit score to the point that you can’t qualify for any new credit cards. It depends on the age of your oldest account and the other information on your credit report.

Avoid opening new credit cards for several months before making a mortgage, auto loan, or rental application. The new accounts can hurt your chances of being approved even if you still have a good credit score.

Keep in mind that the best credit card offers are generally reserved for people with good credit. If you don’t have a good credit score, you may not be approved for the good signup bonuses. You can use CreditKarma.com to get an idea of your current credit score and the types of credit cards you qualify for. Many of the cards on Credit Karma have reviews from other users who list their credit score and report whether they were approved or denied with that score. You can get an idea of whether you should proceed with an application or wait until your credit score improves.